TMI Blog2020 (12) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly directed to re-compute the transfer pricing adjustment after excluding above for companies. Adjustment for interest on receivables - TPO observed that assessee has received payment against invoices raised on Associated Enterprises after delay of substantial period, which in case of some invoices has been allowed for more than 200 days - HELD THAT:- In the case of Kusum Healthcare Private Limited [ 2017 (4) TMI 1254 - DELHI HIGH COURT] held that wherever working capital adjusted margin of comparables has been taken into consideration while benchmarking the main international transaction of sales to AEs, no separate adjustment on account of interest on receivable is required as same get subsumed in working capital adjustment. In the instant case, pursuant to the direction of the Learned DRP, the Learned TPO has computed mean margin of the comparables at 19.93 % , which is available on page 44 of the appeal set. This average margin has been computed using working capital adjusted OP/OC for comparable companies. Thus it is evident that in the instant case working capital adjusted margin of the comparable companies has been considered for determination of arm s-length pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making an upward adjustment to the income of the Appellant by INR 12,844,201 holding that the international transactions of the appellant pertaining to provision of Technical Services does not satisfy the arm s length principle envisaged under the Act and in doing so, have grossly erred in: 3.1. not appreciating that none of the conditions set out in section 920(3) of the Act are satisfied in the present case; 3.2. disregarding the arm s length price (ALP) as determined by the Appellant in the Transfer Pricing (TP) documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 (Rules); 3.3. arbitrarily rejecting/modifying the filters adopted by the Appellant in the TP study and imposing additional filters for the selection of comparables; 3.4. incorrectly selecting functionally different companies engaged in high-end technical, engineering and counseltancy services as comparables and thereby resorting to cherry picking of comparables with a prejudicial mind set for making an upward adjustment to the income of the Appellant; 3.5. including companies having abnormal margins in the final comparables set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount represents merely reimbursement of expenses on a cost-to-cost basis to the group company. 8.3. Without prejudice, that on the facts and circumstances of the case and in law, the Ld. AO and the Hon ble DRP erred in not appreciating that the services provided by the employees seconded to Appellant company do not make available any technical know-how, skills, etc., as provided under the DTAA between India and USA. 9. That in the facts and circumstances of the case and in law, the Ld. AO and the Hon ble DRP failed to appreciate that the sum of INR 53,241,911 was incurred on account of mere reimbursement of Salary and Other Allowances, paid to group company for secondment of employees to work for the appellant during the concerned Assessment Year. 9.1. That the Ld. AO and the Hon ble DRP erred in holding such payments to be in the nature of FTS as per section 9(i)(vii) of the Act and FIS as per article 12(4) of DTAA between India and the USA. 9.2. That the Ld. AO and Hon ble DRP erred in holding that such payments warrant disallowance under section 4o(a)(i) of the Act. 9.3. Without prejudice, that on the facts and circumstances of the case and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as other corporate additions/disallowances. Aggrieved, the assessee filed objection before the Ld. DRP. The Ld. DRP, issued certain directions in the order dated 27/09/2017 in relation to the additions proposed by the Assessing Officer in the draft assessment order. Pursuant to the direction of the Ld. DRP, the Assessing Officer passed the impugned final assessment order after making following additions: Serial No. Addition Amount 1. Transfer pricing adjustment to technical service segment Rs. 1,28,44,201/- 2. Transfer pricing adjustment for interest on receivable Rs.19,49,156/- 3. Disallowance of expenditure under section 40(a)(ia) Rs.6,75,99,621/- 3. Before us, both the parties appeared through videoconferencing facility. The learned Counsel of the assessee filed certain documents and paper-book electronically. We have heard rival submission of the parties and perused the relevant material on record. The grounds raised are adjudicated below. 4. Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.24 2 Neilsoft Ltd 15.62 3 Holtec Consulting 67 .73 TPO 4 IOT Design and Engineering -0.07 5 Korus Engineering Solutions -365 6 Certification Engineering Solutions Ltd 34.77 TPO 7 Acropetal Technologies 29.46 8 BGR Energy Systems 12.27 9 Engineers India Ltd 35.29 Assessee 10 Petron Engineering Construction 9.57 11 Projects and Development India 1.91 Assessee 12 Punj Lloyd 7.34 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal is reproduced as under: Having heard both the sides and perused the relevant material on record, we find it as undisputed fact that Engineers India Limited is a Government company. It has several segments which also include 'Turnkey project . Page 1 onwards of the paper book is a copy of the Annual report of Engineers India Limited. In our considered opinion, this company cannot be included in the list of final comparables. The reason is that Engineers India Limited earned income from turnkey projects by successfully completing the project of other Public Sector Undertakings. In that sense of the matter, the related party transactions are much more than the filter applied by the TPO. We, therefore, order for the exclusion of this company from the list of comparables. Similar view has been taken by the Mumbai Bench of the Tribunal in Thyssen Kmpp Industries India (P) Ltd. vs. Addl. CIT (2013) 154 TTJ 689 Hum). Such Tribunal order has been approved by the Hon'ble Bombay High Court, a copy of which has been placed on record. The Delhi Bench of the Tribunal in Bechtel India (P) Ltd. vs. DCIT (2016) 66 taxmann.com 6 (Del.) (Trib.) has also reiterated similar view. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Delhi High Court in the case of Kusum Healthcare Private Limited (ITA No. 756/2016) wherein it is held that no separate adjustment is required for notional interest on receivables wherever working capital adjustment has already been factored for benchmarking the main international transaction of the sales or services provided to AEs. He submitted that in the case of the assessee Ld. DRP has already granted working capital adjustment and therefore no separate adjustment is warranted in the case of the assessee. Alternatively, he also submitted that in view of the decision of the Hon ble Delhi High Court in the case of Cotton Naturals (India) Private Limited versus CIT (ITA No. 233/2014) the arm s-length interest rate for loan advanced to foreign subsidiary by Indian company should be computed based on market determined interest rate applicable to the currency in which loan has to be repaid. He submitted that accordingly in the case of the assessee LIBOR rate should be applied instead of SBI prime lending rate. 6.2 The Learned DR, on the other hand, supported the finding of the lower authorities and submitted that in view of the delay period in case of some invoices being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational transaction of sales to AEs, no separate adjustment on account of interest on receivable is required as same get subsumed in working capital adjustment. In the instant case, pursuant to the direction of the Learned DRP, the Learned TPO has computed mean margin of the comparables at 19.93 % , which is available on page 44 of the appeal set. This average margin has been computed using working capital adjusted OP/OC for comparable companies. Thus it is evident that in the instant case working capital adjusted margin of the comparable companies has been considered for determination of arm s-length price of the international transaction and therefore, following the decision of the Hon ble jurisdictional High Court (supra), no separate adjustment for interest on receivable is required. Accordingly, the ground Nos. 5 6 of the appeal of the assessee are allowed. As we have already deleted the adjustment for interest on the receivables, the alternative ground No. 7 of the appeal seeking application of the LIBOR rate is rendered academic only and therefore same is dismissed as infructuous. 6.5 Grounds No. 8 9 relates to disallowance under section 40(a)(ia) of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Assessing Officer has observed as under: .. It may be pertinent to note that that the Hon ble DRP in the assessee s own case for AY 2011-12 2012-13 has held payments of the above nature under identical facts to be in the nature of FTS. Respectfully following the directions of the DRP in earlier years, the disallowance is proposed to be made in current year also.... 6.7 Before us, the Learned Counsel of the assessee submitted that Tribunal in assessment year 2011-12 had restored this issue to the file of the Assessing Officer to analyse the evidences filed by the assessee and adjudicate on the taxability of those payments. He submitted that in remand proceeding the Learned Assessing Officer has accepted the contention of the assessee and held that no disallowance under section 40(a)(ia) of the Act is warranted and thereby he deleted the disallowance made in the original assessment order for said assessment year. The learned Counsel of the assessee submitted that in view of the principle of the consistency and identity of facts, the disallowance should be deleted in the year under consideration also. In support of the rule of consistency, the Learned Counsel relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted TDS deposited or not Substantiate your clear necessary evidences such as TDS Certificate and other documents in support of your claim. Furnish copies of agreement executed between the assessee and persons referred to at point Nos. (1) and (2) above. 4.2 In response to these notices, the assessee company submitted its replies dated 31/10/2018 and 07/10/2019. The replies furnished by the assessee have been examined and after verification it is found that no addition/disallowance is warranted u/s 40(a)(i) of the Income Tax Act, 1961. Hence, the disallowance of Rs. 11,01,72,196/- made in the Original Assessment Order dated 31/12/2015 is reduced to Rs. NIL. 6.10 Thus, it is evident that in earlier year identical expenses incurred on travel and conveyance and salary on seconded employees has not been found is liable for disallowance u/s 40(a)(ia) of the Act. This action of the Assessing Officer has not been found erroneous or fraud by the higher authorities of the Income Tax Department and, therefore, once the Assessing Officer has acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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