TMI Blog2022 (3) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... see s transactions. In addition to this, we also direct the TPO to adopt turnover filter to determine whether the power segment of L T Limited is fit into the turnover category to compare the transactions of the assessee and then re-compute the TP adjustments. Incorrect computation of margin of comparables and adjustment amount - HELD THAT:- We herein restore the matter back to the TPO with a direction to calculate OP/OC margin by comparing the entities as mentioned above. The matter is setting aside to AO for further calculation. Transfer Pricing adjustment relating to payment of Technical Royalty - HELD THAT:- In this case, the AO has given various reasons to reject the TP study conducted by the assessee for benchmarking royalty payment and thus rejected the arguments of the assessee. Having said so, let us come back to the comparables selected by the TPO. The TPO has selected two comparables M/s Amanasu Energy Corp. M/s Power verde Inc. According to the ld. Counsel of the assessee both are functionally similar and cannot be compared. He further submitted that in respect of M/s. Power verde Inc., the data relied upon by the TPO pertains to AY 2014- 15, whereas, the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng ( TP ) documentation maintained under section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962 (`the Rules') and applying new filters for the purpose of identification of companies comparable to the Appellant. In doing so, the Ld. AO, Ld. TPO and the Hon'ble DRP failed to discharge the statutory onus to establish that any of the conditions specified in clause (a) to (d) of Section 92C(3) of the Act have not been satisfied. Transfer Pricing adjustment relating to Purchase of project material, receipt of technical services, receipt of communication services, receipt of IT services, receipt of Legal and Professional services and salaries and other costs of seconded employee -Rs. 416.340.034 2. Economic Adjustments 2.1 0n facts and in law, the Ld. AO, Ld. TPO and the Hon'ble DRP erred in not allowing appropriate adjustments under Rule 10B(1)(e)(iii) and Rule 10B(3) of the Rules to account for differences in working capital of the comparables vis-a-vis the Appellant, even though the same was allowed in the previous assessment year(s). 3. Erroneous rejection and selection of comparable companies 3.1 0n facts and in law, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of determining the arm's length price. Corporate Tax Adjustments 8. The Ld. AO and Hon'ble DRP erred on the facts and in law in disallowing employee's contribution to Provident Fund ( PF ) and employee's contribution to Employee State lnsurance ( ESI ) amounting to INR 5,100,766. 9. The Ld. AO and Hon'ble DRP erred in disallowing INR 5,100,766 under section 36(1)(va) of the Income-tax Act ( the Act ) on account of delayed remittance of the employee's contribution to PF and ESI. 10. The Ld. AO and Hon'ble DRP failed to appreciate that the Appellant had made the requisite remittance before the due date of filing of Return of Income ( RoI ) for AY 2015-16 i.e 30 November 2015. 11. The Ld. AO failed to appreciate the existing jurisprudence which had held that employee's contribution to PF and ESI are also covered under section 438 of the Act and that the delayed employees contribution to PF and ESI be allowed as deduction in the computation of taxable income for the year under consideration if they are paid before the due date of filing the RoI. 12. Further, the Ld. AO and Hon'ble DRP failed to appreciate the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r are as follows:- TP Adjustment:- Transfer pricing adjustment Rs 59,37,02,420/- Corporate Adjustment:- Disallowance U/s 36(1)(va) Rs 51,00,766/- 4. The assessee has filed its return of income for assessment year 2015- 16 on 30.11.2015 admitting total income of Rs. 59,41,23,930/-. The assessee has filed auditor s report in form 3CEB related to international transactions, as per which during the year under consideration, it has entered into following international transactions with its AEs:- Sl. No Description of Transaction Name of the Associated Enterprises Quantum of International Transaction (Rs. ) Method adopted by the assessee 1 Purchase of Software Licenses and other related services capitalized in books of accounts Doosan Corporation South Korea, Korea 50,71,949 Other Method 2 Payment of Royalty on Sales Doosan Heavy Industries and Constructions Co. Limited, Korea 35,32,88,531 3 Payment of Royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,46,18,652 18 Project Material Lara Doosan Heavy Industries Vietnam Co. Limited, Vietnam 207,04,80,359 19 Salaries and other costs of seconded employee Doosan Babcock Limited Formerly known as Doosan Power Systems Ltd., United Kingdom 1,78,92,834 20 Reimbursement of Bank Guarantee Charges Doosan Heavy Industries and Constructions Co. Limited, Korea 8,16,88,043 21 Recovery of travelling expenses Doosan Babcock Limited Formerly known as Doosan Power Systems Ltd., United Kingdom 1,14,063 22 Recovery of travelling expenses Doosan Engineering Services LLC, USA, USA 1,44,55,637 Total 1248,85,65,231 5. The brief fact of the case is that assessee, M/s. Doosan Power Systems India Private Limited is engaged in the business of designing, building, installat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount (Rs.) Operating Income 33118042461 Operating Expenses 31866939122 Operating Profit 1251103339 OP/OI 3.8% 5.3 During benchmark the TPO made an independent study and the TPO excluded the Engineers India Ltd and included the Larsen and Toubro Ltd which are under grievance of the assessee. 5.4. In case of payment towards technical royalty, the assessee paid the royalty @ 3.17% at the net selling price of the licensed products. The assessee company has adopted Other method as MAM and identified 4 comparable agreements based on search conducted in Royalty stat database. On verification of the comparable agreement it was found that the entities are into construction of building, real estate, disaster management, etc. Accordingly, the details were accumulated by the TPO in its order. The TPO mostly focused in two words specifically energy Boiler during its filter related to the agreement of the assessee with it s AE. As per the TPO two words are missing in the assessee s agreement. Accordingly the filter was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, ld. DRP had not considered the present position of law as laid by a plethora of decisions of this Tribunal which mandated such adjustment as a necessary one while computing profit level indicator. As for interest on delayed receivables, ld. DRP had not dealt with the objections of the assessee against comparing the receivables with pure loans, without considering the commercial expediency factor. On the claim of depreciation of goodwill, ld. DRP had not given any finding why the claim made for the first time before it could not be considered. As for the remittances to employer contribution to Provident Fund, ld. Departmental Representative had not considered the effect of Section 43B on such claim, where remittances of the deducted amount were made before the due date of filing the return. Coming to the disallowance made u/sec. 14A of the Act, the ld. DRP had notadjudicated as to how such disallowance could be made where the claim of the assessee was that it had not earned any exempt income. (ii) IT(TP)A No.83/Chny/2018 , Assessment Year: 2014-15 7. The Ld. AR for the assessee referring to various grounds of appeal filed before the Tribunal submitted that although ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on record and gone through orders of the authorities below along with case laws cited by the ld. AR for the assessee. We find that although the assessee has challenged TP adjustment made by the Ld. TPO in light of FAR analysis and comparables, but the Ld. AR for the assessee has restricted his arguments in respect of entity level adjustments made by the Ld. TPO. Therefore, we rest our findings to the issue of entity level adjustment made by the Ld. TPO in light of certain judicial precedence cited by the Ld. AR for the assessee. Admittedly, it is a well settled principle of law by the decision of Hon'ble Supreme Court in the case of CIT vs. M/s. Firestone International Pvt. Ltd. in SLP No.41327/2015, where the Hon'ble Supreme Court has dismissed the SLP filed by the Department and affirmed to the findings of Hon'ble Bombay High Court, where the Hon'ble High Court held that TP adjustments cannot be made beyond the transactions of the assessee with its associated enterprises. The Hon'ble Bombay High Court in yet another case of CIT vs. Tara Jewels Exports Pvt. Ltd. (supra) had also considered identical issue and held that TP adjustments cannot be made at entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g capital adjustment of comparables is not placed before us. Therefore, we are of the considered view that the matter needs to go back to the file of Ld. TPO to re-consider the working capital adjustment in light of the findings of the Tribunal in assessee s own case for AY 2011-12. Hence, this issue is set aside to the file of the Ld. TPO. 9.1. The Ld DR vehemently argued relied on the orders of TPO DRP. 9.2. Decision:- We heard both the parties. The coordinate benches already granted working capital adjustment to DPSI, assessee. We will no more interfere in the issue. This ground is setting aside for further adjudication to the Ld AO. 10. Ground no-3 Erroneous rejection and selection of comparable companies:- 10.1 During the comparable study made by the ld. TPO and its independent search was made by the Ld. TPO itself. The assessee only agitated two issues that during comparable study the TPO excluded M/s Engineers India Limited included M/s Larsen and Toubro Ltd in its TP Study. As per the order of the TPO, Engineers India Limited is a functionally dissimilar and the company provided engineering consultancy and EPC services on the oil and gas and petrochemic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.3 As per the counsel, the assessee filed written objections before DRP related the TP study of TPO. As per the assessee, the related to project segment Kudgi, Lara Raipur and other segments. As per TP documentation after comparable of 12 studies the Margin of Comparable Companies (MCC) 7.82%. The TPO rejected the 11 comparable and introduced 4 additional comparables the weighted average mean is 7.82%. On the other hand, the margin of the assessee (MAC) computed by the TPO 3.8%. As per the TP documentation, the assessee accepted the Other method . In considering the study of the TPO and the order of the DRP, the assessee submitted that the Government Company cannot be rejected and mentioned the judgment of the Hon ble Madras High Court in the case of CIT vs Same Deutz Fahr India Private Ltd, Tax Case Appeal no. 567 of 2017 order dated 05.12.2017. As per this order of Hon able Madras High Court in point 18, there is, however, no provisions of law which makes any distinction between a Government owned company and a company under private management for the purpose of transfer pricing audit and/or fixation of Alp. There is no reason why a government owned company can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id companies financials are similar to the assessee company. The assessee never disputed the fact that the functions performed by L T Limited is not similar to functions performed by the assessee company, but requested to exclude L T Limited only on the ground that its turnover is huge which is almost more than 16 times of turnover of the assessee. We find that the Ld. DRP in its order on page 7 after considering relevant submissions of the assessee has directed the TPO to consider the power segment functionally of L T Limited and then compare with assessee s transactions. In addition to this, we also direct the TPO to adopt turnover filter to determine whether the power segment of L T Limited is fit into the turnover category to compare the transactions of the assessee and then re-compute the TP adjustments. 11. Ground No. 4: Incorrect computation of margin of comparables and adjustment amount: 11.1 The TPO calculated apart of profit margin in the following comparables. The assessee has also made a counter calculation. The comparison was made by the assessee and filed in its paper book page no 449 which is reproduced as under: Sl.No Name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Royalty @2.5% 27,86,18,715 Downward Adjustment 7,46,69,816 12.2 The assessee challenged the matter before the DRP and the DRP took the following observations: 7.1 Panel: The assessee contended that royalty should be excluded from the operating expenses while computing adjustment/margin of the assessee as royalty was separately benchmarked. This argument of the assessee has no basis. For computing the operating net profit margin of a FPC contractor/manufacturer, under TNMM require consideration of all the operating costs which include royalty also. Royalty expenditure claimed by the assessee is integral part of the cost of the assessee. Merely because Royalty is separately benchmarked, it cannot be excluded from the cost. Accordingly, the contentions of the assessee are rejected. Ground rejected. 12.3 As per the counsel of the assessee, both the authorities arbitrarily rejected the assessee s claim. It is not to be accepted that mere omission of word Boiler or Energy should not be basis for rejecting the search. As per the counsel of the assessee in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s M/s Amanasu Energy Corp. M/s Power verde Inc. According to the ld. Counsel of the assessee both are functionally similar and cannot be compared. He further submitted that in respect of M/s. Power verde Inc., the data relied upon by the TPO pertains to AY 2014- 15, whereas, the issue pertains to AY 2015-16. He further claimed that the TPO has failed to apply proper filter to select the companies. Therefore, considering the facts and circumstances of the case, we are of the considered view that this issue will go back to the file of the TPO for fresh examination of the claim of the assessee to carryout TP analysis in respect of royalty payments. 13. Ground No. 8 to 12 Corporate Tax Adjustment: 13.1 The assessee paid PF ESI of Rs. 5,100,766/- before filing the return u/s. 139(1) of the Act i.e., before 30.11.2015. But not before the due date as prescribed in specific Acts of ESI PF. As per the Assessing Officer, the provisions is violated u/s. 43B of the Act in relation to Employees Contribution to PF ESI. The Ld. DRP failed to appreciate the payments of assessee made after the due date of the specific act, but before the due date of filing return u/s. 139(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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