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2019 (8) TMI 612

..... THAT:- We do not find any justification to accept the contention of the Ld. D.R. Once the provisions and Section 44BBB are not applicable to domestic company as in the case of assessee, therefore, there were no justification even to place reliance upon the same provision while making the addition against the assessee. A.O. has not given any reasons as to why the losses incurred by the assessee are not allowable deduction. Further the assessee has clearly explained that the parties to the contract are not associated concerns of the assessee, therefore, provisions on International Taxation Law would not apply in the case of the assessee. A.O. has not given any finding against the assessee as to how the provisions of transfer pricing are applicable in the case of the assessee. CIT(A) has examined the issue in detail and in his findings has specifically held that the consideration received by assessee from the contract awarded could not be termed as an international transaction. A.O. did not point-out to any material to show as to how the transaction were international transaction in the matter. Since the A.O. failed to point-out that any of the party to the contract were associated co .....

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..... ing 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 Section 92E read with section 271BA and provisions of Section 92D read with section 271G are not applicable? 7. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) failed to discuss the statement on oath recorded u/s 131 of the Managing Director of the assessee company? 2. Briefly the facts of the case are that assessee company is a domestic company and filed return of income declaring loss of ₹ 87,32,064/-. The A.O. completed the assessment under section 143(3) vide order dated 16.12.2011 at the income of ₹ 80,58,710/-. Ignoring the computation on income given by .....

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..... 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 equipments. In fact the assessee company had to charter a vessel for delivery of equipments on time to avoid delay in completion schedule and liquidity demurrage. 3.1. The A.O., however, did not accept the explanation of the assessee and held that assessee explained only the expense part of the contract and does not address the issue on revenue side. The AO held that Mr. Ranjeet Kumar, director of the appellant company is only an employee director without any shares in the company. Hence, the AO observed that revenue bifurcation of the contract has not been decided on independent considerati .....

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..... 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 revenue bifurcation of the contract has not been decided on independent considerations having regard to the scope of services to be executed, risk assumption and assets employed. The transactions undertaken by the assessee company with its assumed Associated Enterprise M/s. Mont Blanc is an international transaction. The assessee company has not maintained any documentation as prescribed under section 92D of the I.T. Act. The A.O. also mentioned that the definition of international transaction is defined under section 92B and held that the provisions of Law clearly show that transaction .....

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..... ved 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 the Act are not relevant in this case. The AO also attempted to bring the transaction under the transfer pricing mode in view of the fact that in the previous A.Y. the assessee had submitted transfer pricing report on transactions under consultancy agreement entered into with M/s Mont Blanc Trading Company. The prescribed form No. 3 GEB for transfer pricing submitted by the appellant for A.Y. 2008-09 indicates that the assessee company had entered into only one transaction with its associated enterprise in the A.Y. 2008-09 that is with ISTIL. The name of M/s Mont Blanc Trading Company was no .....

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..... e 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 ₹ 67,71,145/- Add : Depreciation as per Companies Act ₹ 2,75,6161- Add: Expenses to extent disallowance u/s.40(a) ₹ 1,51,686/- Work contract expenses disallowed ₹ 4,40,667/- Income included in P&L A/c Expenses ₹ 6,72,465/- Less : Depreciation as per Companies Act Rs.- 2,35,169/- Interest Income Rs.-2,78,844/- Preliminary exp written off u/s 35C Rs.- 17,700/- ₹ 77,79,866/- Add : Income From Other Sources ₹ 2,78,844/- Total Taxable Income as assessed by the Assessing Officer ₹ 80,58,710/- ₹ 67,71,145/- is Profit Determined by the assessing officer in terms of section 44BBB of the Act. These profits have been computed @ 11% on the cost incurred by the assessee company. Other disallowances are as per the computation of income given by appellant along with return of income. The computation of taxable income as done by the AO indicates that while computing the profit u/s 44BBB of the Ac .....

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..... 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 of section 44BBB is deleted. 4. The Ld. D.R. merely relied upon the Order of the A.O. 5. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that the issue of taxability of income was considered by the Ld. CIT(A)-IX, New Delhi in the case of the same assessee for preceding A.Y. 2008-2009 and the Ld. CIT(A) vide Order dated 12.12.2011 has partly allowed the appeal of assessee. Copy of the Order is placed on record. 6. We have considered the rival submissions. It is not in dispute that assessee is a domestic company. Therefore, provisions of Section 44 .....

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