9911796707
TMI Blog2020 (12) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld. AO / Ld. Transfer Pricing Officer (Ld. TPO) is bad in law and therefore the adjustment should be deleted. 3. That on the facts and circumstances of the case and in law, the Ld. AO following the directions of the Ld. TPO/ Hon'ble DRP erred on facts and in law in 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 couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 9(i)(vii) of the Act and Fee for Included Services (FIS) as per article 12(4) of Double Taxation Avoidance Agreement (DTAA) between India and the USA. 8.2. The Ld. AO and the Hon'ble DRP failed to appreciate that the said amount 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of technical services, which was further rectified to Rs. 1,38,64,533/-. In the draft assessment order dated 29/12/2016, the Assessing Officer proposed transfer pricing adjustment as 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. Ground Nos. 1 & 2 of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International 6.2 14 Techno Electric and Engineering 17.55 15 Wapcos 66.28 Assessee 16 TCE Consulting Engineers Ltd 12.32 Average 1993 5.2 Before us, the Learned Counsel of the assessee submitted that if comparables namely, 'Certification Engineering Solutions Ltd.', 'Engineers India Ltd.', 'Projects and Development India' and 'Wapcos', are excluded from the set of comparables, the margin of the assessee would be in the safe harbour range and no adjustment would be required in the case of the assessee in respect of technical support services. The Learned Counsel referred to page 298 and 300 of the paper-book and submitted that Certification Engineering Solutions Ltd (CEIL), is a Government of India enterprises. He submitted that support and backing of the government makes the company not comparable with the assessee. He submitted that the major projects have been awarded to the CEIL by Government companies. He submitted that in the case of the assessee in assessment year 2010-11, the Tribunal has rejected government companies as comparable to the assessee. Similarly, to support that Engineers India Ltd, Projects and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a wholly-owned subsidiary of 'Engineers India Ltd.', which is a government of India undertaking. The 'Engineer India Ltd.' has already been held by the Tribunal as a government of India undertaking. On perusal of the page 329 of the paper-book, we find that 'Wapcos' has been mentioned as government of India undertaking-Ministry of water resources. Similarly, Projects and Development India Ltd. is also one of the Government of India undertakings as evident from the Annual Report of the Company. The Projects and Development India Ltd. is Mini Ratna Company under the Department of Fertilizers, Government of India. In view of the above factual position, respectfully following the finding of the Tribunal (supra) these four companies being Government of India undertakings, are directed to be excluded from the set of the comparables. The Learned AO/TPO is accordingly directed to re-compute the transfer pricing adjustment after excluding above for companies. The grounds No. 3 & 4 of the appeal are accordingly allowed partly. 6. The grounds No. 5, 6 and 7 relates to adjustment for interest on receivables. The Learned TPO observed that assessee has received payment against invoices raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: "10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression "receivables‟ does not mean that de hors the context every item of "receivables‟ appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the fig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign AE were acting as employee of the assessee and the assessee is responsible to pay salary of such employees as well as their travelling and conveyance cost for the employment period. During the year under consideration, the assessee reimbursed travelling and conveyance cost and salary cost of such employees to Associated Enterprise. The assessee did not deduct tax on travelling and conveyance cost on the ground that same are 'pure reimbursement' of the expenses paid by the foreign Associated Enterprise in respect of such employees, however with respect to the salary cost, the tax was deducted under section 192 of the Act. The Learned Assessing Officer in draft assessment order, however was of the view that seconded employees continued to remain employees of the Associated Enterprise and were not employees of the assessee during the period of the secondment. According to him, amount shown as reimbursement to Associated Enterprises are actually in the nature of Fee for Technical Services and since there was no employer-employee relationship between the assessee and the secondees, in view of nondeduction of the tax on such payment, same were liable for disallowance. The Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant material on record. The issue in dispute before us is whether the travelling and conveyance cost and salaries paid to the seconded employees constitute fee for technical services or not. The Learned Counsel of the assessee has submitted before us that on the direction of the Tribunal, in assessment year 2010-11, the Assessing Officer has re-examined the taxability of travelling and conveyance on salary cost to the seconded employee in the hands of the assessee and found that no addition is warranted under section 40(a)(ia) of the Act. The relevant part of the order of the Assessing Officer is reproduced as under: 4. Disallowance u/s 40(a)(i) of the Income Tax Act, 1961 4.1 As the matter related to the issue of disallowance u/s 40(a)(i) was restored back to the file of AO by the Honhle ITAT, New Delhi, hence fresh notice u/s 143(2) of the Act dated 13/02/2018 was issued to the assessee. Thereafter, notices u/s 142(1) of the Act were issued to the assessee company from time to time wherein the following details were sought:- "Annexure-A for furnishing information in respect of AY 2011-12 1. Please furnish the details of payment made in respect of travel and con ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
