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TMI Blog2018 (3) TMI 1824X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts and circumstances of the case and in law, the AO / Transfer Pricing Officer ("TPO") / Dispute Resolution Panel ("DRP") have erred in making an adjustment of INR 31,869,942 in respect of international transactions pertaining to provision of design and engineering services and supply of equipment, alleging the same to not be at arm's length in terms of the provisions of sections 92C(1) and section 92C(2) of the Act read with rule 10D of the Income-tax Rules, 1962 ("the Rules"). 2.2 That on the facts and in the circumstances of the case and in law, the AO / TPO / DRP have erred in rejecting the segmental profit and loss account, in relation to AE and non-AE segment, on conjectures and surmises alleging that such accounts are not reliable and audited. 2.3 That on the facts and in the circumstances of the case and in law, the AO / TPO / DRP have erred in arbitrarily rejecting the internal Transactional Net Margin Method ("TNMM") as the most appropriate method used by the Appellant to benchmark the international transaction and further erred in applying external TNMM using external comparable companies. 2.4 That on the facts and circumstances of the case and in law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, 50 percent thereof, as attributable to the PE of the Appellant, on conjectures and surmises. 3.4 That on the facts and circumstances of the case and in law, the AO / DRP have erred in attributing further profits to the PE of the Appellant without appreciating that the subject transactions have been scrutinized by the TPO and no further profits could have been attributed. 3.5 That on the facts and circumstances of the case and in law, the AO / DRP have erred by misinterpreting the facts of the case and making assumptions in attributing further profits to the PE of the Appellant, being the branch office in India. 4. Ad-hoc disallowance of business expenses amounting to INR 2,605,000 4.1 That on the facts and in the circumstances of the case and in law, the AO / DRP have erred in making an arbitrary and ad-hoc disallowance of business expenditure amounting to INR 2,605,000, incurred on repair and maintenance, communication and miscellaneous expenses. 4.2 That on the facts and in the circumstances of the case and in law, the DRP has erred in not admitting the details of the expenditure, placed before the DRP as additional evidence, by the Appellant during the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders. 8. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that an identical issue having similar facts was a subject matter of adjudication in the preceding assessment year 2008-09 in ITA No. 6227/Del/2012 wherein vide order dated 21.02.2014, the issue has been decided in favour of the assessee and the relevant findings have been given in paras 4 & 5 which read as under: "4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position. 5. Rule 10B(1)(e) of the Income Tax Rules, which deals with the Transactional Net Margin Method, provides requires that "the net profit margin realized by the enterprise (i.e. the assessee) from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base" is compared with " the net profit margin realized by the enterprise ( i.e. the assessee) or by an unrelated enterprise from a comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the considered view that the TPO indeed erred in rejecting the segmental accounts and thus declining to accept the internal comparable. We are also of the view that the size of the uncontrolled transaction or transactions being smaller, by itself, does not make these transactions incomparable with the transactions in controlled conditions. Size of the comparable does matter in entity level comparison because scale of operations substantially vary and so does the underlying profitability factor, but in a transaction level comparison within the same entity, mere difference in size of the uncontrolled transactions does not render the transaction incomparable. If the size of uncontrolled transaction is too big, it may call for an adjustment for volume business. If the size of the uncontrolled transaction is too small, it may provoke an inquiry by the TPO to ensure that it is not a contrived transaction outside the normal course of business or with regard to other significant factors surrounding smallness of such transaction. However, in our considered view, in none of these cases, a comparable can be rejected on the basis of its size per se. In this view of the matter, the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2011 for the assessment year 2006- 07 wherein the relevant findings have been given as under: "4.3 We have considered the rival submissions and perused the relevant material on record. It can be seen from the Assessing Officer's final order passed u/s 144C(13) that the entire issue has been discussed in a solitary para No. 6 of around 10 lines at page 37 of the order. It has been concluded that the assessee must have received a sum equal to its declared receipts in respect of direct transactions between the HO and its Indian customers and the further presumption is that it is in nature of fees for technical services. We are unable to appreciate the logic of the AO in drawing inferences, one after me other and the conclusions reached in this regard. There is no material worth the name to suggest, even remotely, that the assessee was rendering services to its head office or the Indian clients in respect of direct transactions between them. There is absolutely no bedrock for such presumption. The learned DR was required to invite our attention towards any material indicating the assessee's involvement in the direct transactions between the head office and Indian customers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2, the grievance of the assessee relates to the ad-hoc disallowance of business expenses amounting to Rs. 26,05,000/-. 17. Facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee vide questionnaire dated 10.02.2011 was asked to submit details/summaries of expenses. He further observed that the assessee failed to submit the details. Therefore, due to lack of evidences, following disallowances were made on ad-hoc basis: Sl. No. Heads of expenses Amount as per Audited accounts(Rs) Amount disallowed (RS) 1. Repaid and Maintenance 82,05,734.00 8,20,000.00 2. Communications 18,52,991.00 1,85,000.00 (including personal use of employees) 3. Miscellaneous Expenses 32,45,989.00 16,00,000.00 (breakup/summary has not been submitted) Total Rs. 26,05,000.00 18. The AO also mentioned that the objections of the assessee were addressed by the ld. DRP vide para 9. He, therefore, made the disallowance of Rs. 26,05,000/-. 19. Being aggrieved the assessee is in appeal. The ld. Counsel for the assessee submitted that the objections raised by the assessee on this issue were not adjudicated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 which read as under: "5.1 The assessee has raised an addition ground against the charging of interest u/s 234B of the Act. The same, being involving a pure question of law, is admitted for decision on merits. 5.2 Having heard the rival submissions and perused the relevant material on record in respect of this additional ground, we find that the issue of charging interest u/s 234B in the present case is ho more res integra in view of the judgment of the Hon'ble Bombay High Court in DIT (International Taxation) v. NGC NetworkAsia LLC [2009] 313 ITR 187, in which it has been held that when the duty is cast on the payer to deduct tax at source, on failure of the payer to do no interest can be charged from the payee assessee u/s 234B. The same view has been reiterated in DIT (IT) v. Krupp UDHE GmbH [2013] 40 taxmann.com 38 (Bom.). As the assessee before us is a non-resident, naturally any amount payable to it which is chargeable to tax under the Act, is otherwise liable for deduction of tax at source. 5.3 At this juncture, it is relevant to note that the Finance Act, 2012 has inserted a proviso, at the end of section 209(1) w.e.f. 1.4.2012 which provides that for computing l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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