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TMI Blog2019 (8) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... d completely ignoring the detailed reasons given by the A.O. in the assessment order? 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in holding that the A.O. erred in applying Section 44BBB and erred in applying net profit at 11.11% of Cost without appreciating the fact that the A.O. has drawn inferences from the provision of Section 44BBB as the case of the assessee was similar to services in Civil Contractor of turn-key steel plant? 4. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in holding that the assessee and M/s Mont Blanc Trading Company are not Associated Enterprises without discussing the detailed reasons given by the A.O. for treating these concerns as Associated Enterprises u/s 92A & 92F(iii)? 5. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that no Transfer Pricing Study was done by the A.O. because the assessee failed to provide the details regarding the International Transaction despite being specifically asked by the A.O.? 6. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) in holding that the provisions of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Section 44BBB of the I.T. Act and applied profit of 11% of the cost and computed the profit from business and profession in a sum of Rs. 67,71,145/-. The assessee challenged this addition before the Ld. CIT(A) and has raised several arguments in support of the same. 3. The assessee contended before the Ld. CIT(A) that inference of AO that the foreign currency expenses on ocean freight which resulted in the loss was incurred as the assessee company was not acting as an independent company is not correct. The assessee explained before A.O. that it has incurred loss in the contract with Bokaro Steel Plant. The main reason for the loss was due to long tendering process and price rise. The assessee company had given the quote after keeping its margin on the estimates obtained from the local sub contractor. However, Bokaro Steel Plant has taken very long time in the process of Tendering and awarding the contract. By that time prices increased substantially and the local sub contractor also increased its price substantially. Further, the assessee company incurred increased cost of ocean freight because of non availability of SCI vessel at the time of delivery of equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2. The assessee reiterated the submissions before the Ld. CIT(A) and argued that the expenditure incurred are wholly and exclusively for the purpose of business and A.O. has not doubted the genuineness of the expenditure. The A.O. has merely conjectured that the foreign currency expenses on ocean freight which resulted in to loss were incurred as the assessee company was not acting as an independent company. It was pleaded parties to contract are not A.E's. The assessee relied upon several decisions. The assessee, therefore, prayed that entire addition may be deleted. The assessee also objected to the observation of the A.O. that the provisions of contract were applicable to assessment year under appeal and also that services defined in that contract were relevant to assessment year under appeal. The assessee also objected to the treatment and submitted that terms and conditions agreed in the earlier assessment order cannot be the basis for computation of net profit of the current assessment year. The assessee objected to the observations of the A.O. on three issues that proceeded to the estimate of profit on the basis of cost + margin method. 3.3. The A.O. inferred that the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is between appellant, M/s ' Mont Blanc Trading Company, MZTM Ukraine and SAIL. These two companies are not associated enterprises of ISTIL and hence the appellant cannot be treated as associated enterprise of the two companies with whom the contract was entered. Secondly, the AO also attempted to treat the contract as international transaction u/s 92B of the Act. In the case of appellant the definition of international transaction as stipulated in Section 92B is not applicable as services are being rendered directly to SAIL and consideration for rendering of services is also being received from SAIL in Indian rupee. Without any consideration being given to or being received from M/s Mont Blanc Trading Company, the contract cannot be turned as international transaction. Thirdly, the AO also attempted to point out that this is an international transaction and the appellant failed to furnish the documentation u/s 92D and u/s 92E of the Act. It is pertinent to note that the interference drawn by AO is based on the scope of work as entered in the agreement. Since the transaction is not an international transaction as discussed above, the documents prescribed u/s 92D and u/s 92E of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf shall be deemed to be equal to ten per cent of the amount paid or payable whether in or out of India. The section does not give the AO any scope, to step into the shoes of the legislature and : 1. To apply a percentage higher than the prescribed percentage i.e. use 11% instead of 10%. 2. To change the base on which the profit of 10% is to computed from the gross receipts received by an entity to the cost incurred by an entity. 3. To add the disallowances that were made by the assessee company while computing its taxable income to the deemed profits computed by the assessing officer. The taxable income of the assessee company as computed by the assessing officer is as under: Profit from gains of business and profession Rs. 67,71,145/- Add : Depreciation as per Companies Act Rs. 2,75,6161- Add: Expenses to extent disallowance u/s.40(a) Rs. 1,51,686/- Work contract expenses disallowed Rs. 4,40,667/- Income included in P&L A/c Expenses Rs. 6,72,465/- Less : Depreciation as per Companies Act Rs.- 2,35,169/- Interest Income Rs.-2,78,84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction as sham, onus is upon department to show that apparent is not real - Held, yes - Whether where assessee adduces necessary evidence in support of his case, Assessing officer is duty bound to falsify of assessee's claim with more convincing and appealing evidence - Held, yes - Whether mere suspicion cannot lead to conclusion that transaction is sham - Held, yes There may be some reflection in the whole affair that may create some doubt. But, the reflection of transaction is independent of the genuineness of the transaction. The AO attempted to establish that this is a case of transfer pricing, arms length pricing and service contract of power project. But there was no TP study, no co 'able uncontrolled transactions for such treatment. Thus, assuming that a portion of profit is retained by Mont Blanc, the AO applied provision of 44BBB on the cost. Again not restricting the computation of income at 10% of cost or payment as stipulated in the Sec.44 BBB of the Act, the AO extrapolated this percentage to 11.11% as the total contract receipt amount was not known. In the facts and circumstances of the case the estimation of profit made by AO applying the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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