TMI Blog2017 (1) TMI 1718X X X X Extracts X X X X X X X X Extracts X X X X ..... r pricing adjustment made is hereby deleted. Disallowance being 50% of the expenditure incurred towards employees cost and administrative and selling of distribution expenses - HELD THAT:- There is no concrete evidence before the Departmental Authorities nor any material has been brought on record to establish the fact that the assessee has been providing marketing support services to its A.E. as far as sale of turbines by the A.E. is concerned. On the contrary, the information obtained u/s 133(6) from the parties in India to whom the A.E. had sold gas turbines clearly reveal that all these customers have unequivocally stated that they have directly negotiated with the A.E. as far as purchase of gas turbines are concerned and they have independently entered into contract with the assessee for installation, maintenance and supply of balance parts. Contention of the assessee that its turnover during the impugned assessment year has increased by 40% and the head count of employees have increased as well as payments of provident fund for the first time, payment of participation fee, travelling fee incurred for attending conference, training of employees, etc., have not been dispro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing the indenting commission instead of taking the amount actually received by associated enterprise from third party customers during the assessment year 2011-12. 6. The learned Assessing Officer / Dispute Resolution Panel / Transfer Pricing Officer erred in not sharing complete details/ information collated under section 133(6) of the Income-tax Act, 1961 ('the Act') in respect of contracts between associated enterprise and third parties and on the basis this information obtained under section 133(6) erred in concluding that the Assessee is acting as an agent on behalf of its associated enterprise. Grounds relating to Direct Tax 7. On the facts and circumstances of the case and in law, the learned AO under the directions the Hon'ble DPP erred in considering a without prejudice stand in relation to the disallowance of ₹ 4,50,24,747/- on account of 50% of employee cost and administrative selling and distribution expenses without appreciating the fact that the said expenses are incurred by the appellant for its own business. Other Ground 8. On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer Pricing Officer, information was received from the Assessing Officer to the effect that the assessee has entered into a contract with PWD(CWG),Delhi on behalf of its A.E. Turbomach SA, Switzerland, for supply of gas turbines and their installation, commissioning, etc. The TPO observed, the entire bidding process and subsequent granting of contract was attended to and coordinated by the assessee on behalf of its A.E. According to the TPO, the assessee had been liaisoning with the Government of India on behalf of its A.E. for which no service charges have been charged to the A.E. He observed, the total contract value agreed upon between the assessee and PWD initially was ₹ 20,42,68,000 which was subsequently revised by the A.E. to ₹ 19,57,68,000. He further noted, while submitting the bid to the PWD, the assessee had bifurcated the contract value of ₹ 19,57,68,000, into two parties viz. A.E s part of ₹ 12,49,68,000 and assessee s part of ₹ 7,08,00,000. Whereas, the requirement of PWD was for the entire work of supply of gas turbine generating system and their installation for a sum of ₹ 19,57,68,000. The Assessing Officer commented, whether suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee also furnished list of six parties to whom the assessee provided services of installation / commissioning of turbines supplied by the A.E. during the relevant previous year. On the basis of details of the parties submitted by the assessee, the Assessing Officer issued notice under section 133(6) calling for information, the Transfer Pricing Officer also called for information from the Assessing Officer any other proof available with him, he has formed an opinion that the assessee has done liaisoning work with the Government on behalf of its A.E. From the information submitted by the Assessing Officer, he found that the assessee in its submissions dated 31st July 2014, before the Assessing Officer had admitted that the A.E. was not qualified to enter into bid with the PWD (CWG). Thus, the entire bid was entered into by the assessee on its own behalf as well as on behalf of its A.E. but in its own name. Though, ultimately, the turbine was supplied by the A.E. under the contract, however, the assessee had provided support services to the A.E. and also acted like an agent in selling its turbine in India. He also noticed, as per the documents submitted payment for turbine was ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of turbine, it was the assessee s employee who was liaisoning on behalf of the assessee as well as the A.E. for the finalization of the contract. Thus, on the aforesaid facts, the Transfer Pricing Officer came to the conclusion that the assessee had provided support service for sale, marketing and after sale services on behalf of the A.E. in India for which it should have received indenting, commission or service fees. The Assessing Officer, therefore, called upon the assessee to show cause why the services provided by the assessee in selling its turbine should not be bench marked and why arm's length price should not be determined. Since the assessee has not received any amount from its A.E. in lieu of service rendered. In this context, the Transfer Pricing Officer had also obtained a copy of contract of indenting commission entered into by five other parties wherein the rate of commission charged on the sales executed by them are as under: 1. Hand Innovation Inc. 22% 2. Mentor Medical Inc. 11.40% 3. Servonex Company 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering any liasoning work for the sale of turbines to Indian customers. The DRP observed, if the A.E. does not have any P.E. / Branch Office in India and the assessee is also not doing any liaisoning work on behalf of the A.E., how the A.E. can sell turbines to potential customers in India. The DRP also observed, the assessee did not file any documentary evidence to support its claim that no support services were provided. The DRP observed from the details submitted by the assessee in respect of earning of income from installation and commissioning work, it was revealed that the assessee did not submit these details pertaining to transactions with PWD (CWG). It was observed, as the assessee did not submit even the basic details called for by the Transfer Pricing Officer, he had to independently make enquiry by calling for information from the six parties to whom the assessee had sold turbines in India. The DRP observed, as per the condition of bid, the A.E. was not qualified to enter into bidding process for the PWD contract. Hence, the entire bid process was entered into and executed by the assessee on its own behalf and in its own name. Therefore, the entire income / revenue shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within arm s length. The learned Authorised Representative submitted, though, in the impugned assessment year also, the nature and character of transactions of the A.E. and the assessee remained the same, only because of a contract entered with PWD (CWG), the Department has taken a different view in the impugned assessment year, as regard the alleged marketing service provided by the assessee. The learned Authorised Representative taking us through the contract entered with PWD (CWG) submitted, as per the eligibility criteria fixed in the notice inviting tender, the work of construction of multipurpose air conditioned indoor stadium with required facilities for netball and synthetic athletic track is open for the original equipment manufacturer or from consortium and authorised business partners / authorised dealers of repute for such work. It was submitted, as per the condition imposed in NIT, the participating agency should furnish registration certificate under Delhi Value Added Tax 2004. Further, the parties participating in tender must have experience in completing one work of providing cash based turbine generation system of capacity not less than 2000 KW during the last seve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 92B of the Act, hence, there is no question of determining arm's length price notionally. In this context, he relied upon the following decisions: 1. Maruti Suzuki India Ltd. v/s CIT, 381 ITR 117; 2. Bausch Lomb Eyecare (India) (P.) Ltd. v/s ACIT 381 ITR 227 3. L'Oreal India (P.) Ltd. v/s DCIT, 49/473 (Trib.) 10. Learned Departmental Representative submitted, even if the transaction value is zero still arm's length price has to be computed since the assessee and the A.E. are related parties. He submitted, since the A.E. has no P.E. in India and the assessee being a related party, is functioning in India, there is possibility of rendering of services by the assessee to A.E. as far as sale of gas turbines are concerned. He submitted, contract with PWD (CWG) is a composite contract providing for supply of particular material as well as rendering of services. He submitted, if the assessee has provided some services in relation to sale of gas turbines it will come within the ambit of international transaction as defined under section 92B. He submitted, if the assessee had played a role in procuring a contract for the A.E., then the assessee must be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, the entire basis of transfer pricing adjustment is the contract entered with the PWD (CWG). On a perusal of relevant clauses of contract, a copy of which has been submitted in the paper book, it is noticed that the scope of work as per the NIT is as under: Multipurpose air conditioned indoor stadium with required facilities for netball (competition and training venue) and 400 MT x 8 lane synthetic athletic track with required facilities (training venue) at Tyagraj Sports Complex at Tyagraj Nagar, New Delhi 12. The condition for eligibility for participating for tender, inter alia, provides for submissions of registration certificate under Delhi Value Added Tax, 2004. It also provides original equipment manufacturer (OEM) of gas turbines should be having experience of providing gas based turbine generating system of certain capacity and specification. Admittedly, assessee is not a manufacturer of gas turbines, but, it s A.E. is. It is not in dispute that assessee s A.E. i.e., Turbomach SA was not having any VAT registration certificate, hence, was not qualified in participating in the bid. Whereas, the assessee was having registration certificate under the Delhi VAT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no way involved in the sales effected as the concerned parties have directly entered into contract / negotiation with Turbomach SA for supply of gas based turbines. In this context, a reference can be made to the replies submitted by the concerned parties in compliance to notices issued under section 133(6) by the Transfer Pricing Officer. Though, relying upon these replies the Transfer Pricing Officer had concluded that assessee had provided marketing support services to its A.E. as regards sale of turbine to Indian customers, however, a careful reading of the replies proves otherwise. On a perusal of the aforesaid replies given by the parties in India to whom the A.E. had sold turbines, copies of which are placed in Volume V of the paper book, it is evident all of them have categorically stated that they came to know about Turbomach SA through various OEM in Europe and they had negotiated directly with Turbomach SA for purchase of gas turbine which continued from earlier years and the assessee was no way involved in such transaction. Further, the concerned parties also stated, as far as assessee is concerned, they have independent contract for installation, maintenance of gas t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer pricing adjustment made is hereby deleted. Grounds no.1 to 5 are allowed. Since, we have held that there is no factual basis for determining the arm's length price of indenting commission for provision of marketing support services to A.E., it is not necessary to dwell upon the decisions relied upon by the parties. 13. In view of the above decision, ground no.6 does not require any adjudication, hence, dismissed. 14. In ground no.7, assessee has challenged the disallowance of ₹ 4,50,20,744 being 50% of the expenditure incurred towards employees cost and administrative and selling of distribution expenses. 15. Brief facts are, in the course of assessment proceedings, the Assessing Officer after verifying the audited financial statements noticed that the assessee had incurred huge expenditure on account of employee cost and administrative, selling and distribution expenses which includes business promotion and travelling and conveyance expenses. The Assessing Officer observed, the assessee provides installation, commissioning services to parties who have purchased plant and machinery from its A.E. The Assessing Officer observed, the A.E. has no branch of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the same amount in the hands of other entity. In view of the fact that in the computation of total income, the amount of ₹ 4,50,24,747/- has not been added back by the AO, it appears that the AO is of the view that the amount of ₹ 4,50,24,747/- is telescoped in the TP adjustment of ₹ 32,35,68,333/-. 7.4 Thus, the DRP directs the AO to remove the protective addition from the draft /assessment order and take a without prejudice stand on the addition of ₹ 4,50,24,747/-. Further, the draft order should clearly state that this addition of ₹ 4,50,24,747/- is telescoped in the addition made on account of TP adjustment amounting to ₹ 32,35,68,333/-. The AO is directly to modify the draft assessment order, accordingly. Since, the DRP has confirmed the addition of ₹ 32,35,68,333/- made on account of TP adjustment, no detailed comments are being offered on the without prejudice of ₹ 4,50,24,747 proposed in the draft assessment order. 17. The learned Authorised Representative reiterating the stand taken before the DRP submitted, as far as the expenditure incurred on account of employee cost, during the relevant previous year there was 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions at the hands of the assessee their has to be a substantive addition of the same amount in the hands of the A.E. The specific direction of the DRP, therefore, was to remove the protective addition and take a without prejudice stand on the addition of ₹ 4,50,24,747. The DRP further directed the Assessing Officer to clearly state whether addition ₹ 4,50,24,747 is telescoped in the addition made on account of transfer pricing adjustment amounting to ₹ 32,35,68,333. However, on a perusal of the final assessment order passed in pursuance to the direction of the DRP, it is noticed that neither the Assessing Officer has taken a without prejudice stand on the addition of ₹ 4,50,24,747, nor has made any observations to the effect that the said amount has been telescoped to the addition made on account of transfer pricing adjustment. On the contrary, the Assessing Officer has simply re moved the protective addition from the assessment order and has not made any addition in the computation of total income. That being the case, in our considered opinion, there is no necessity for adjudication of this issue as no addition has been made by the Assessing Officer inde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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