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TMI Blog2018 (6) TMI 1825X X X X Extracts X X X X X X X X Extracts X X X X ..... lants and turbines. The assessee filed its return of income on 25.10.2012 declaring total income of Rs.7,91,22,173. 3. Since the assessee had undertaken international transaction with its AE's, the Assessing Officer referred the matter to the TPO u/s. 92 CA (3) of the IT Act. The TPO during the T. P. assessment proceedings observed that assessee has undertaken the following international transactions which it is AE's during the year. S. No. Nature of Transactions Amount in INR 1. Provision of technical services 323.487,821/- 2 Provision of payroll administration services 85,544,679/- 3 Purchase of payroll administration services 6,553,185/- 4. Reimbursement of expenses 90,509,257/- Total 506,094,942/- 4. The TPO passed the order u/s 92CA(3) dated 28.01.2016, wherein he took due consideration to the objections of the assessee in regard to inclusion of comparables and errors in arm's length margin calculations and determined the following comparables to be used in the assessee's case for computing the arm's length margin: S.No. Company Name OP/OC % 1 HSSC (India) Ltd. 48.91% 2 Mahindra Consulting Engineers Ltd. 26.67% 3 Mitcon Consultancy & En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case and in law, the transfer pricing adjustment undertaken by 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 3,20,01,219 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 functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses to be in the nature of Fee for Technical Service (FTS) as per section 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 6,64,77,837 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 g(i)(vii) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Mumbai Bench of the Tribunal in the case of Shell India Markets Pvt. Ltd. Vs. ACIT vide ITA No. 193/M/2013 and Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ld. Vs. DCIT in ITA No. 882/Del/2014. 9. So far as Mahindra Consulting Engineers Limited is concerned he submitted that it is a consultancy company and is engaged in under taking diversified projects in the infrastructure sector by providing consultancy services in the area of SEZ, water supply and the sewerage, solid waste management, urban infrastructure etc. Based on the above, it was rejected in the case of Emerson Process Management Power & Water Solutions India Private Limited vide ITA No.5343/Del/2012) comparable. 10. Referring to the decision of the Bangalore Bench of the Tribunal in the case CISCO Systems (India) (P.) Ltd vide ITA No.271/Bang/2014 he submitted that Mahindra Consulting Engineers Limited was excluded from the list of comparables on the ground that it is engaged in provision of infrastructure consulting services. Referring to the decision of the Tribunal in the case of Rolls Royce India (P.) Ltd vide ITA No. 6636/Del/2015 he submitted that this company was excluded from the list o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requested for inclusion of the 2 comparables companies namely MN Dastur & Company Pvt. Ltd. and EDCA Engineering Private Limited. 14.1 So far as MN Dastur & Company Pvt Ltd. is concerned he submitted that the company was not selected by the assessee in the T. P. documentation on account of non-availability of data in public domain. However, at present the Annual Report of the company is available in public domain, a copy of which is enclosed at pages 1032 to 1182 of the paper book. It is involved in provision of services related to engineering projects like feasibility study, design and engineering, construction management, product management, inspection, operational assistance and business and technology consulting etc. which is akin to the functions carried out by the assessee. Referring to the decision of the Tribunal in assessee's own case for A. Y. 2010-11 and 2011-12 he submitted that MN Dastur Private Limited was accepted as comparable. Therefore, this company being functionally similar and in the light of the decision of the Tribunal for A. Y. 2010-11 and 2011-12 be included in the list of comparables. 15. So far as EDAC Engineering Limited is concerned he submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e file to the TPO with the direction to verify from the annual accounts and other details to be furnished by the assessee and decide the issue. While doing so he shall also keep in mind the decision of the Tribunal in assessee's own case for A. Y. 2011-12 wherein this company was excluded from the list of comparables. We, therefore, restore this comparable to the file of the TPO with the direction to decide the issue of exclusion of HSCC India Ltd afresh after giving due opportunity of being heard to the assessee. 18. So far as exclusion of Mahindra Consulting Engineer Limited is concerned we find from the order of the Tribunal in assessee's own case for A.Y. 2010-11 that the Tribunal vide in ITA No. 1486/Del/2015 order dated 04.08.2017 had direct the TPO to retain this company in the list of comparables by observing as under :- '8.1. The TPO proposed this company as the same, in his opinion, was also rendering consultancy services, such as, opportunity analysis, expediting services, etc. in the areas of SEZ, industrial parks and townships, profitization. environment and other areas. The assessee objected to the same before the TPO by arguing that this company was providing cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T of 41.56% which is more than trash hold limit of 41.56 %. We, therefore, restore this issue to the file of the Assessing Officer / TPO to verify the functional dissimilarity as well as the RPT and decide the issue of inclusion or exclusion of this company afresh. Needless to say that the Assessing Officer / TPO shall given due opportunity of being heard to the assessee. 20. So far as Mitcon Consultancy and Engineering Services Ltd., is concerned we find this company provides services to the banking division, entrepreneurship and vocational training division, E-schools and BT and Pharma sector. Revenue earned by the company from services other than consultancy is approx.43% of the total revenue. Milton also owns fixed assets such as wind turbine generators and therefore, has a high fixed asset to sales ratio of 34.09 %. We find this company was rejected by the Tribunal in assessee's own case vide ITA No. 532/Del/2016 for A. Y. 2011-12 by observing as under:- "7. Similarity, in respect of Mitcon Consultancy and Engineering Services Limited and Rites Ltd. it is submitted that both these companies have multi dimensional functionality and mostly serving the related parties, and apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same by holding that the Annual Report of this company was not available in public domain. The Assessee objected before the DRP against the exclusion of this company by urging that: 'the company is engaged in engineering projects from initial feasibility to commencement of operations under one single umbrella. It is involved in provision of services related to engineering projects like feasibility study, design & engineering, construction management, product management, inspection, operational assistance I and business and technology consulting'. The DRP did not take cognizance of this contention raised before it vide para 4.132 of the Assessee's objections. This is how this company was finally excluded from the list of comparables. The Assessee is aggrieved against the exclusion of this company. 7.2 Having heard both the sides and perused the relevant material on record, it is seen that the Annual Report of this company is available at page 169 onwards of the paper book. In view of the fact that this company is also providing end-to-end services starting with feasibility study, extending to design and engineering, thereafter construction and inspection, etc., being the simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Tribunal. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee. The above grounds are accordingly allowed for statistical purposes. 26. In grounds of appeal No. 8 and 9 the assessee has challenged the action of the Assessing Officer in disallowing re-imbursement of travelling and conveyance expenses of Rs.2,28,15.393/- and the reimbursement of Salary and Allowance of Rs.6,64,77,837/- u/s 40 (a) (i) of the I. T. Act, 1961. 27. So far as reimbursement of Travel and Conveyance expenses of Rs.2,28,15,393 is concerned, the Ld. Counsel for the assessee submitted that the said amount represents reimbursement of travel and conveyance expenses by the assessee to its group company Granite USA. He submitted that the said amount doesn't warrant any disallowance under section 4o(a)(i) of the Act since the amount is paid towards reimbursement of travel and conveyance expense and is not chargeable to tax under the Act. Referring to provisions of section 40 (a) (i) he submitted that the said section provides for disallowance of certain amounts paid outside India or to non-residents on which appropriate TDS compliance has not been made. 28. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA and the backup documentation (on sample basis) filed before AO vide letter dated March 17, 2016 he submitted that on a perusal of supporting evidences, it is seen the payments are actual reimbursement of expenses incurred by these parties outside India and there is no element of income embedded in such payments. 32. Referring to the following decisions, he submitted that reimbursement of expenses with no income element embedded therein requires no tax deduction in India. (1) CIT vs. Tejaji Farasram Kharawalla Ltd. [1968] 67 ITR 95 (2) Mahindra & Mahindra Ltd. vs. DCIT [2009] 313 ITR (AT) 263 (Mumbai) (SB) : 22 DTR 361 (Mumbai ITAT) (SB) (3) Expeditors International (India) P. Ltd vs. Addl. CIT [2010] 2 ITR 153 (Delhi ITAT) (4) Global E-Business Operations (P) Ltd. vs. DCIT [2012] 52 SOT 457 (Bangalore ITAT). (5) CIT vs. Tata Engg. & Locomotive Co. Ltd. [2001] 114 Taxman 141 (Bombay HC) (6) JDIT (Int. Tax) vs. KRUPP UHDE GmbH [2009] 26 DTR 289 (Mumbai ITAT): [2010] 1 ITR 614 (Mumbai) (7) Nathpa Jhakri Joint Venture vs. ACIT [2010] 5 ITR 75 (Mumbai ITAT) (8) Coca-Cola India Inc. vs. Addl. CIT [2006] 7 SOT 224 (Delhi ITAT) (9) ITO vs. Dr. Willmar Schwabe India (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee, the services provided by seconded employees do not fall in the purview of FIS under India- USA DTAA and therefore, not liable to tax in India. He submitted that in the present case, the employees who were seconded in India were rendering services which were in the nature of erection, installation, commissioning, warranty administration, operation and maintenance, inspection, renovation and modernization in relation to power plants and turbines. The services of the seconded employees are procured on a regular basis and there is no imparting of any technical knowledge, skill or know-how etc. by the seconded employees to the Appellant. He also drew attention of the bench to Paragraph 4 of Article 12 of the IndiaUSA DTAA and submitted that the definition of FIS, inter -ali a, requires making available of technical knowledge, experience, skill, know-how etc. The term 'make available' has been explained in the Memorandum of Understanding ('MOU') forming part of the India- USA DTAA. Relying on various decisions, he submitted that no disallowance u/s. 40 (a) (i) can be made on account of non-deduction of tax from reimbursement of salaries and allowances. 39. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees Provident Fund (EPF) 43. Ld. Counsel for the assessee submitted that in the final assessment order, following the directions of DRP, the AO made disallowance of Rs. 5,17,463 on account of delay in deposit of EPF as per the due dates defined under the PF Act. However, the AO ignored the fact that the said EPF contributions have been duly deposited before the filing of return of income and accordingly allowable as per Section 43B of the Act. He submitted that the amount of Rs.517,463/- falling due on 20.06.2011 was deposited on 24.06.2011. The AO merely relying on section 2(24)(x) read with section 36(i)(va) of the Act disallowed the amount of Rs. 5,17,463. Relying on various decisions, he submitted that the amount cannot be disallowed. 44. The Ld. DR on the other hand heavily relied on the order of the Assessing Officer. 45. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. It is an admitted fact that the contributions to employee's provident fund though deposited beyond the prescribed date as per the PF act, however, the same has been deposited prior to the due date of filing of return of income. The coordinate Be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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