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Granite Services International P. Ltd. Versus ACIT Circle 10 (2) , New Delhi

2017 (9) TMI 1024 - ITAT DELHI

TPA - comparable selection - Held that:- Assessee is primarily engaged in providing technical support to its associated enterprises (AEs). The technical support services provided by the assessee to its AEs relate to provision of erection, installation, commissioning, warranty administration, operation and maintenance, inspection, renovation and modernization services for power plants and turbines, this companies functionally dissimilar with that of assesse need to be deselected from final list. .....

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the AO, after affording an opportunity to the assessee to furnish the requisite details that have a bearing on the disallowance u/s 40(a)(i) of the Act. We, therefore, set aside this aspect to the file of the AO. - ITA No.-532/Del/2016 - Dated:- 12-9-2017 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER For The Assessee : Sh. K.M. Gupta, Adv. For The Revenue : Sh. Amrender Kumar, CIT DR Kumar Pranav, Sr. DR ORDER PER K. N. CHARY, J.M. This is an appeal by the assessee ch .....

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ed enterprises (AEs). The technical support services provided by the assessee to its AEs relate to provision of erection, installation, commissioning, warranty administration, operation and maintenance, inspection, renovation and modernization services for power plants and turbines. For the AY 2011-12 the assessee filed the return of income on 29.11.2011 declaring a total income of ₹ 6,95,32,697/-. In respect of the international transactions, the matter was referred u/s 92CA of the Income .....

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ed a query in respect of the tax deductible at source (TDS) compliance being made in respect of certain expenses but the assessee opposed the same stating that the said issue was not borne out of draft assessment order nor from the additions proposed by the AO, but without prejudice to such contentions, furnished the details sought by the DRP. DRP gave certain directions to the AO to verify and compute the disallowance u/s 40(a)(i) of the Act. Assessee furnished the factual and legal submissions .....

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ncluded Services (FIS)/Fees for Technical Services (FTS) in India and accordingly liable to tax in India, and since the assessee did not withhold any tax on these expenses, such expenses are liable to be disallowed u/s 40(a)(i) of the Act. By way of order u/s 154 of the Act the AO issued rectification, assessing the income of the assessee of ₹ 20,46,84,323/- after deleting the disallowance made in respect of purchase of pay roll administration services of ₹ 49,61,837/-. Finally the A .....

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r (AO) pursuant to the directions of Hon ble Dispute Resolution Panel (DRP) is bad in law and invalid to the extent the additions made in the final assessment order. 2. That in the facts and circumstances of the case and in law, the Transfer Pricing Officer (TPO)/the AO/the DRP erred in not appreciating that none of the conditions set out in section 92C(3) of the Income Tax Act, 1961 ( Act ) are satisfied in the present case. 3. That the TPO/the AO/the DRP have erred on facts and in law in enhan .....

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olding that the international transactions of the appellant pertaining to provision of technical services to its Associates Enterprises (AEs) do not satisfy the arm s length principle envisaged under the Act and in doing so, have grossly erred in: 3.4 disregarding the Arm s Length Price (ALP) as determined by the appellant in the Transfer Pricing (TP) documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ( Rules ). 3.5 Rejecting compar .....

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of functions performed, assets employed and risks assumed; and excluding certain companies on arbitrary/frivolous grounds even though they are comparable to the appellant in terms of functions performed, assets employed and risks assumed; 3.8 By committing a number of factual errors in selection/rejection of proposed comparables; 3.9 Ignoring the business/commercial reality that the appellant undertakes minimal business risks as against comparable companies that are full-fledged risk taking entr .....

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visions of Section 144C (8) of the Act without appreciating that there is no such disallowance/variation proposed by the AO under section 40(a)(i) of the Act in the draft assessment order nor there is any objections of the appellant in this regard before the DRP. 4.1 That the DRP failed to appreciate that the insertion of explanation below sub section 8 of section 144C of the Act was to make an enhancement on the variation made in the draft assessment order and not to raise a fresh issue which i .....

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9,61,837, under section 40(a)(i) of the Act. 6.1 The AO and the DRP failed to appreciate that the appellant has duly complied with the provisions of Chapter XVII B and section 40(a)(i) of the Act in respect of the said Payroll Administration Services. 6. That on the facts and circumstances of the case and in law, the AO and the DRP erred in holding that the Travel and Conveyance expenses of ₹ 2,32,85,369 warrant disallowance under section 40(a)(i) of the Act. 6.1 The AO and the DRP erred i .....

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AO and the DRP erred in not appreciating that the services provided by the employees seconded to appellant company do not make available any technical know-how, skills, etc., as provided under the DTAA between India and USA. 7. That in the facts and circumstances of the case and in law, the AO and the DRP failed to appreciate that the sum of ₹ 8,19,24,990 was incurred on account of mere reimbursement of Salary and Other Allowances, paid to group company for secondment of employees to work .....

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provided by the employees seconded to appellant company do not make available any technical know-how, skills, etc., as provided under the DTAA between India and USA. 8. That in the facts and circumstances of the case and in law, the AO erred in levying interest under section 234A of the Act without appreciating that the Income Tax return was filed within the due date. 9. That in the facts and circumstances of the case and in law, the AO erred in withdrawal of interest under section 244A and levy .....

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y ground of appeal either before or at the time of hearing of this appeal. Any consequential relief to which the appellant may be entitled under law in pursuance of the aforesaid grounds of appeal, or otherwise may be granted. 4. Ld. AR submitted that grounds 1, 2, 9 & 10 are general in nature, grounds 3 and 4 are in respect of the transfer pricing adjustment, and grounds 5 & 6 are in respect of corporate tax issues. He further submitted that grounds 7 & 8 are academic in nature in v .....

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e s own case in ITA No. 1486/Del/2015 for the AY 2010-11 a coordinate bench of this Tribunal considered Mahendra Consulting Engineers Ltd. and MN Dastur & Company (P) Limited and found that these two companies are includible in the list of comparables and to that extent those two comparables are covered by the earlier year orders. What, therefore, remains to be considered, it is the challenge of the assessee for the inclusion of HSCC India Limited, Mitcon Consultancy & Engg. Services Ltd .....

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i - Trib.) at paragraph no. 12.8.1 and 12.8.2, wherein it was held as follows: 12.8.1 Next is the case of Engineers India Limited, which was included by the TPO at his own. The Ld. Counsel for the assessee contended that this case should be ignored because it is a Government Undertaking. It was further pointed out that most of its customers of the Turnkey project division are related parties, being, other Public Sector Undertakings, which is much more than the filter of 25%. The Ld. Departmental .....

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r unit of IOCL s Panipat Naphtha Cracker Project. In our considered opinion, this case should not have been included in the list of final comparables for two reasons. First reason is that profit motive is not a relevant consideration in case of Government undertakings. Many Government Undertakings even operate on losses in furtherance of the social obligations of the government. The second reason is that Engineers India Limited earned income from turnkey project by successfully completing the pr .....

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ia Limited cannot be a comparable. 7. Similarly, in respect of Mitcon Consultancy and Engineering Services Limited and Rites Ltd. it is submitted that both these companies have multi dimensional functionality and mostly serving the related parties, and apart from that the segmental data is not available. On this aspect also Ld. AR submits that these two companies cannot be good comparables. On facts, Ld. DR does not dispute the same. We, therefore, hold that these two companies also cannot be co .....

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ectfully following the said finding of the coordinate bench for the earlier year hold that this company has to be included in the list of comparables. 9. Now coming to the EDAC Engineering Limited, it is the observation of the TPO, vide paragraph no. 8.1(b) that on the analysis of the annual report of the company which was found that the company was having 100% RPT with AEs. Ld. AR submits that factually this finding is incorrect and invited our attention to paragraph no. 4.121 & 4.122 at pa .....

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eering Limited for the financial year ended March 31, 2011 vide notes relating to related parties, and submitted that these figures are the basis for the submissions in the table referred to above, and there is a failure on the part of the authorities below to appreciate this fact. On the face of this submission with reference to the annual report of EDAC Engineering Limited and submissions made before the DRP, we are of the considered opinion that this fact needs verification. We, therefore, se .....

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sdiction in view of the provisions u/s 144C(8) of the Act. According to him the DRP has no jurisdiction to go beyond the issues arising from the assessment order in respect of explanation appended to Section 144C(8) by Finance Act, 2012 w.e.f. 1.4.2009. He submits that even this explanation also does not enlarge the jurisdiction of the DRP that was originally conferred by the provision. 11. As an example for his argument he submitted that in case three issues, namely issue A, issue B and issue C .....

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before the DRP, the DRP will have jurisdiction in respect of Issue No. C also inasmuch as such an issue emanates from the assessing order. However, in so far as any other issue the DRP shall have no jurisdiction even after the explanation to Section 144C(8) that was inserted by the Finance Act, 2012 w.e.f. 1.4.2009. According to him whether or not the assessee raises any objection, the jurisdiction of DRP is strictly confined to the variation proposed in the assessment order but nothing else. B .....

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agraph nos. 23 & 24 the Hon ble High Court held as follows: 23. One more aspect which needs some discussion is with regard to the submission that the DRP had no occasion to consider the issue of taxability of the transaction involving the transfer of the expired value of the contract in exchange of shares as no variation had been suggested by the Assessing Officer on this aspect of the matter in his draft assessment order. It was submitted by the Ld. Counsel for the revenue that the jurisdic .....

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eedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. Section 144C (8) and the Explanation appended thereto reads as under: 144C (8) The Dispute Resolution Panel may confirm, reduce or exchange the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under subsection (5) fur further enquiry and passing of the assessment order. Explanation. - For the removal of doub .....

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directions were issued after the Explanation had come into operation. In any event, the Explanation is clarificatory. Reading the Explanation with sub section 144C(8), it is evident that the Dispute Resolution Panel could examine the issues arising out of the assessment proceedings even though such issues were not part of the subject matter of the variations suggested by the Assessing Officer. In this light, it is significant that though the draft order had not proposed any addition with regard .....

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