M/S. BALLAST NEDAM DREDGING, MUMBAI V. THE ADIT (IT) 3(2), MUMBAI

CO 81/MUM/2007

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8244 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 26-11-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 09-05-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN; SURINDER JIT SINGH
• Assessee Lawyers: NIRANJAN G
• Keywords: Transfer pricing; Business expenditure; Double taxation relief; Opportunity of being heard; International transaction; Permanent establishment; Commercial expediency; Revised return
• Section: 92C; 92E; 37(1)

Judgement Text

ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 1 OF 37 IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NOS.6531/MUM/2006 & 1591/MUM/2008 (ASSESSMENT YEARS: 2002-03 & 2003-04) ADIT (IT) 3(2), SCINDIA HOUSE, ROOM NO.132, 1 ST FLOOR, N.M. ROAD, MUMBAI 400038 VS. BALLAST NEDAM DREDGING, RUNWAL CHAMBERS, 1 ST FLOOR, 1 ST ROAD, CHEMBUR, MUMBAI 400071 PAN: AABCB 1700 E (APPELLANT) (RESPONDENT) C.O. NO.81/MUM/2007 (ARISING OUT OF ITA NO. 6531/MUM/2006) BALLAST NEDAM DREDGING, RUNWAL CHAMBERS, 1 ST FLOOR, 1 ST ROAD, CHEMBUR, MUMBAI 400071 PAN: AABCB 1700 E VS. ADIT (IT) 3(2), SCINDIA HOUSE, ROOM NO.132, 1 ST FLOOR, N.M. ROAD, MUMBAI 400038 (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY: SHRI AJEET KUMAR JAIN & SHRI SURINDER JIT SINGH, DR ASSESSEE BY: SHRI KANCHUN KAUSHAL, SHRI DHANESH BAFNA & SHRI NIRANJAN GOVINDKAR DATE OF HEARING: 26/11/2012 DATE OF PRONOUNCEMENT: 31/01/2013 O R D E R PER BENCH: THE APPEALS ARE PREFERRED BY THE REVENUE AGAINST T HE ORDERS OF THE CIT(A)-31 MUMBAI DATED 18.08.2006 AND 31.12. 07 FOR THE AYS 2002-03 AND 2003-04. ASSESSEE PREFERRED THE CRO SS OBJECTION AGAINST THE ORDER FOR AY 2002-03. AS COMMON ISSUES ARE INVOLVED THESE ARE HEARD TOGETHER AND DISPOSED OFF BY THIS C OMMON ORDER.FOR ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 2 OF 37 THE SAKE OF CONVENIENCE THE APPEAL BY REVENUE IN AY 2002-03 AND CO BY ASSESSEE WERE TAKEN UP FIRST. ITA NO 6531/MUM/2006: THE REVENUE GROUNDS ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING T HE ADDITION MADE BY AO OF ` .2,43,77,621/- ON ACCOUNT OF ADJUSTMENT IN RESPECT OF PAYMENT OF LEASE RENTAL OR DREDGER HECTOR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (A) ERRED IN STATING THAT T HESE ARE NOT A.E, WHEREAS IN GR. NO.3, PARA 4.2 HE HAS AGREE D WITH AO THAT AO CAN EXAMINE THE INTERNATIONAL TRANSACTION FOR CORRECT ASSESSMENT OF INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (A) ERRED IN HOLDING THAT T HE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER IS WHOLLY ARBITRARY IN REJECTING THE VG BOUW CERTIFICA TE WHEN THE LEARNED CIT (A) IS OF THE VIEW THAT TOO MU CH UNCERTAINTY IS ASSOCIATED WITH THE VG BOUW CERTIFIC ATE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (A) ERRED IN FACT AND IN LA W IN DELETING THE ADDITION OF ` .80,51,038/- IN RESPECT OF DREDGER SAGA BY HOLDING THAT NO ADJUSTMENT IS REQUI RED TO BE MADE AS THE PAYMENTS MADE IS LESS THAN 5% . C.O. NO.81/MUM/2007 2. EVEN THOUGH ASSESSEE RAISED FOUR GROUNDS IN CROSS O BJECTION, THE GROUNDS FROM 1 TO 3 WERE WITHDRAWN AS NOT PRESS ED AND GROUND NO.4 ONLY WAS PRESSED, WITHOUT PREJUDICE, WHICH IS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT (A) ERRED IN FACT AND I N LAW IN DELETING THE ADDITION OF ` .80,51,038/- IN RESPECT OF DREDGER SAGA BY HOLDING THAT NO ADJUSTMENT IS REQUI RED TO BE MADE AS THE PAYMENTS MADE IS LESS THAN 5%. 3. BRIEFLY STATED, BALLAST NEDAM DREDGING (BND/ASSESSE E) IS A COMPANY INCORPORATED IN THE NETHERLANDS. DURING THE YEAR ASSESSEE WAS INVOLVED IN EXECUTION OF A CONTRACT FOR CONSTRU CTION OF BREAKWATERS AND THE ASSOCIATED DREDGING AND LAND RE CLAMATION ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 3 OF 37 WORKS AT KARWAR AWARDED BY THE GOVT. OF INDIA. BND IS A TAX RESIDENT IN NETHERLAND AND THE PROVISIONS OF DTAA B ETWEEN INDIA AND NETHERLANDS APPLY. SINCE THE PRESENCE OF ASSESS EE IN INDIA EXCEEDED THE LIMIT OF SIX MONTHS AS PRESCRIBED IN A RTICLE 5(3) OF THE TAX TREATY ASSESSEE HAD A PERMANENT ESTABLISHMENT I N INDIA TAXABLE ON NET INCOME BASIS. ASSESSEE OFFERED AN INCOME OF ` .1,76,40,410. A REVISED RETURN OF INCOME WAS FILED ON 26.02.2004 DE CLARING TAXABLE INCOME AT ` .44,93,503. DURING THE YEAR UNDER CONSIDERATION ASSESSEE REPORTED INTERNATIONAL TRANSACTION WITH IT S ASSOCIATED ENTERPRISES (AES) IN THE FORM 3CEB UNDER RULE 92E O F THE ACT. AO REFERRED THE CASE TO THE TPO VIDE THE LETTER DATED 04.09.2003 FOR DETERMINING THE ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE . 4. THE ASSESSEE COMPANY HAD HIRED TWO DREDGERS SAGA FROM M/S BALLAST NEDAM BAGGEREN EXPLOITATIEMAATSCHAPPIJ B.V., NETHERLANDS (BNBE) AND HECTOR FROM B.V. WERKTUIGM AATSCHAPPIJ L. PAANS EN ZONEN, NETHERLANDS (WLPZ). SAGA DREDGE R WAS UTILIZED DURING THE PERIOD 1.4.2001 TO 5.5.2001 AND PAYMENTS WERE MADE AS PER THE AGREEMENT WITH BNBE ENTERED ON 05.01.2000. THE DREDGER HECTOR WAS UTILIZED DURING THE PERIOD FROM 17.01.20 02 TO 31.03.2002 WHEREAS PAYMENTS WERE MADE AS PER THE AG REEMENT DATED 21.12.2000. BEFORE THE TPO, IT WAS ARGUED THA T THE AGREEMENT WITH THE BNBE AND THE WLPZ WERE ENTERED INTO PRIOR TO 01.04.2001 AND THE TRANSACTIONS BEING A CONTINUOUS TRANSACTION WHERE TRANSFER PRICING PROVISIONS WERE NOT APPLICABLE, THE SAME CA NNOT BE CONSIDERED UNDER THE TP PROVISIONS IN THIS YEAR. FU RTHER, IT IS ALSO ARGUED THAT THE AGREEMENT WITH WLPZ WAS ENTERED ON 21.12.2000 WHEN ASSESSEE AND THE WLPZ WERE INDEPENDENT ENTITIE S AND NOT ASSOCIATED ENTERPRISES. IT WAS SUBMITTED THAT THE W LPZ BECAME ASSOCIATED ENTERPRISES DURING NOVEMBER 2001. THEREF ORE, THE PRICE PAID TO WLPZ WAS THE SAME AS ENTERED WHEN IT WAS IN DEPENDENT ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 4 OF 37 ENTITY AND THEREFORE, THE SAME HAS TO BE CONSIDERED AS UNCONTROLLED TRANSACTION. 5. ASSESSEE HAD OBTAINED QUOTATIONS FROM GREAT LAKES D REDGE & DOCK COMPANY (GLDD) DATED 22.12.1999 AND ANOTHER QU OTATION FROM DREDGING INTERNATIONAL N.V. (DI) DATED 15.12.1 999 BEFORE ENTERING INTO THE CONTACTS FOR HIRE. BOTH THESE QUO TATIONS WERE OBTAINED FOR DREDGER SAGA IN RELATION TO THEIR USE IN CALENDAR YEAR 2000 AND CALENDAR YEAR 2001. FOR THE DREDGER HECTOR , GLDD GAVE QUOTATION DATED 13.12.2000 FOR CALENDAR YEAR 2001 & 2002. SIMILARLY DI GAVE QUOTATION DATED 11.12.2000 FOR DR EDGER HECTOR FOR CALENDAR YEAR 2001 & 2002. ASSESSEE ALSO OBTAINED T ECHNICAL CERTIFICATE FROM VG BOUW FOR BOTH THE DREDGERS. V G BOUW CERTIFICATE FOR VESSEL SAGA IS DATED 01.10.2002. SI MILARLY VG BOUW CERTIFICATE FOR VESSEL HECTOR IS DATED 01.10.2002. FOR SAGA, CERTIFICATE IS IN RESPECT OF CALENDAR YEAR OF 2001 WHEREAS FOR HECTOR FOR CALENDAR YEAR 2002. VG BOUW CERTIFICATE DATED 0 1.10.2002 CLARIFIED THAT THE LEASE RENTAL FOR OPERATION DOES NOT INCLUDE EXCESSIVE WEAR AND TEAR, OVERHEAD, MOBILIZATION/DEM OBILIZATION. CERTIFICATE ALSO MENTIONED THAT MARKET CONDITIONS P REVAILING AT THE TIME WHEN TRANSACTIONS WERE FINALIZED WERE ALSO TO BE ADJUSTED. VG BOUW CERTIFICATE REGARDING MOBILIZATION AND DEMOBIL IZATION STATED THAT NO OVERHEADS WERE INCLUDED AND THAT MARKET CON DITIONS PREVAILING AT THE TIME WHEN THE TRANSACTION WAS FIN ALIZED SHOULD BE TAKEN INTO ACCOUNT. 6. AS THE TPO FOUND THAT THE RATES QUOTED BY THE VG BO UW CERTIFICATE WERE LESS COMPARED TO THE RATES AT WHIC H PAYMENTS WERE MADE BY ASSESSEE, HE ASKED ASSESSEE TO JUSTIFY. ASS ESSEE ARGUED THAT THE EXCESSIVE WEAR AND TEAR, OVERHEADS AND MAR KET CONDITIONS HAVE NOT BEEN TAKEN INTO ACCOUNT. IF THESE WERE TAK EN INTO ACCOUNT, VG BOUW RATE WOULD BE COMPARABLE WITH THE RATE AT W HICH ASSESSEES HAD MADE PAYMENTS. UPON THE REQUIREMENT O F TPO, ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 5 OF 37 ASSESSEE APPROACHED THE VG BOUW AGAIN AND OBTAINED THE CERTIFICATES DATED 24.12.2004 (TWO SEPARATE CERTIFI CATES FOR SAGA & HECTOR). THE VG BOUW PROVIDED FOR ADDITIONAL 15% RE PAIRS FOR DREDGER HECTOR AND 20% REPAIRS FOR DREDGER SAGA IN RESPECT OF LEASE/ OPERATIONAL RENTAL. ASSESSEE ON ITS OWN SUBM ITTED TO THE TPO THAT THE MOBILIZATION/DEMOBILIZATION RENTALS WERE A LSO REQUIRED TO BE ADJUSTED BY SAME PERCENTAGE OF ADDITIONAL REPAIR S. REGARDING THE OVERHEADS, ASSESSEE SUBMITTED BEFORE THE TPO A CERT IFICATE FROM KPMG DATED 05.09.2001 CERTIFYING THAT IN THE CALEND AR YEAR 2001 THE INDIRECT COST OF BALLAST NEDAM DREDGING (ASSESS EE) AS DESCRIBED IN THE COMPANIES ACCOUNTING POLICIES ARE 13% OF THE TURNOVER IN THAT YEAR, WHICH PERCENTAGE WAS USED IN INVOLVING T HESE COSTS TO BALLAST NEDAM DREDGING (SINGAPORE BRANCH). ASSESSEE ACCORDINGLY SUBMITTED THAT OVERHEAD COST @10% IS REQUIRED TO BE ADDED. 7. AFTER MAKING THESE ADJUSTMENTS, ASSESSEE PROVIDED T HE TOTAL WORKING OF VALUATION STARTING FROM VG BOUW CERTIFIC ATE TO THE ACTUAL PAYMENT BY ASSESSEE. CHART READ AS UNDER: DESCRIPTION OF VG BOUW TECHNICAL CERTIFICATE WORKIN G ALL FIGURES IN EURO PER WEEK ACTIVITY/ DREDGER CHARTER HIRE RATES PER VG BOUW ADDITIONAL WEAR & TEAR PER VG BOUW OVERHEAD COSTS @ 10% ADJUSTMENT FOR MARKET CONDITIONS ARMS LENGTH PRICE OPERATIONS SAGA 1,70,564 11,789 17,056 2,201 2,01,610 HECTOR 2,07,361 8,331 20,736 31,007 2,67,435 MOBILIZATION/DEMOBILIZATION SAGA 1,44,937 6,663 14,494 13,704 1,79,798 HECTOR 1,35,060 160 13,506 33,838 1,82,564 ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 6 OF 37 8. THE POSITION OF RATES QUOTED BY DI & GLDD FOR BOTH THE VESSELS ARE AS UNDER: PARTICULARS DREDGING INTERNATIONAL GREAT LAKE DREDGE & DOCK CO. (1) AMOUNT NLG PER WEEK (2) AMOUNT EURO PER WEEK (3)=(2)/ 2.20371 AMOUNT NLG PER WEEK (4) AMOUNT EURO PER WEEK (5)=(4)/ 2.20371 VESSEL:SAGA MOB/DEMOB YEAR 2000 3,69,314 1,67,587 3,68,712 1,67,314 MOB/DEMOB YEAR 2001 3,87,443 1,75,814 3,88,732 1,76,399 OPERATIONS: YEAR 2000 4,14,733 1,88,198 4,15,053 1,88,343 OPERATIONS: YEAR 2001 4,38,411 1,98,942 4,37,968 1,98,741 VESSEL HECTOR MOB/DEMOB YEAR 2001 3,76,469 1,70,834 3,74,155 1,69,784 MOB/DEMOB YEAR 2002 3,95,451 1,79,448 3,93,713 1,78,659 OPERATIONS: YEAR 2001 5,49,541 2,49,371 5,48,131 2,48,731 OPERATIONS: YEAR 2002 5,79,953 2,63,171 5,81,334 2,63,798 ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 7 OF 37 ACTUAL PAYMENT CHARTER HIRE RATES TO BNBE AND WLPZ ARE AS UNDER: PARTICULARS AS PER CHARTER AGREEMENT AMOUNT NLG PER WEEK AMOUNT EURO PER WEEK (1) (2) (3)=(2)/2.20371 VESSEL:SAGA MOB/DEMOB YEAR 2000 3,76,579 1,70,884 MOB/DEMOB YEAR 2001 3,96,222 1,79,798 OPERATIONS: YEAR 2000 4,22,470 1,91,709 OPERATIONS: YEAR 2001 4,44,290 2,01,610 VESSEL HECTOR MOB/DEMOB YEAR 2001 3,83,160 1,73,870 MOB/DEMOB YEAR 2002 4,02,318 1,82,564 OPERATIONS: YEAR 2001 5,61,285 2,54,700 OPERATIONS: YEAR 2002 5,89,349 2,67,435 9. REGARDING THE CORRECTNESS OF THE QUOTATIONS OBTAINE D FROM GLDD AND DI, THE TPO DID NOT ACCEPT THEM ON THE GRO UND AS OBSERVED IN HIS ORDER ON PAGE 11 AS UNDER: AFTER GOING THROUGH THE CONTENTS OF THE QUOTES FRO M GREAT LAKES DREDGE & DOCK COMPANY AND DREDGING INTERNATIONAL, IT IS SEEN THAT FOR THE VESSEL SAGA QUOTES WERE OBTAINED IN DECEMBER, 1999 AND FOR THE VESSEL HECTOR QUOTES WERE OBTAINED IN DECEMBER, 2000. CHARTERING OF VESSEL SAGA : THE CHARTER AGREEMENT FOR VESSEL SAGA WAS ENTERED I NTO ON 05.01.2000. THE PERIOD OF CHARTER WAS 10.01.2000 UPTO AND INCLUDING 31.12.2001. THE DATE OF ARRIVAL OF VESSEL IN INDIA IS NOT KNOWN. HOWEVER, BND-PO USED THE DREDGER UPTO 05.05.2001. DUE TO THIS, IT IS NOT KNOWN THAT FOR WHAT PURPOSE THE VESSEL WAS USED DURING THE PERIOD 01.01.2000 TO 31.03.2001 AND ALSO DURING THE PERIOD 05.05.2001 TO 31.12.2001. ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 8 OF 37 CHARTERING OF VESSEL HECTOR: THE CHARTER AGREEMENT FOR VESSEL HECTOR WAS ENTERED INTO ON 21.12.2000. THE PERIOD OF CHARTER WAS 01.01.2001 UPTO AND INCLUDING 31.12.2002. FROM THE DETAILS FILED BY ASSESSEE, IT IS SEEN THAT DREDGER HECTOR CAME IN INDIA ON 02.02.2002 AND WAS OPERATING IN INDIA TILL 31.05.2002. THEREFORE, IT IS NOT KNOW TH AT WHO USED THE VESSEL DURING THE PERIOD 01.01.2001 TO 01.02.2002 (13 MONTHS) AND ALSO AFTER 31.05.2002 TO 31.12.2002 (7 MONTHS). DUE TO THESE FACTS, VIDE ORDER SHEET DATED 14.02.20 05, THE ARS WERE ASKED TO SUBMIT THE CHARTER HIRE RATES CHARGED BY THE OWNERS FOR THE ONE YEAR EARLIER AND ONE YEAR AFTER OF THE USE BY BND-PO AND ALSO BE BND. THESE DETAILS ARE NOT FILED TILL DATE. THE DREDGERS WERE HIRED BY BND NETHERLANDS FOR TWO YEAR PERIODS BUT USED BY BND PROJECT OFFICE FOR THE LIMITED PERIOD O NLY, THEREFORE, THE INFORMATION REGARDING USE OF THE DRE DGERS FOR THE REMAINING PERIOD IS AVAILABLE WITH BND. IF BND DID NOT USE THESE DREDGERS DURING THE PERIOD OF CHA RTER HIRE THEN IT WOULD BE REQUIRED TO GIVE THE CONSENT FOR USE OF VESSEL BY SOME OTHER ENTITY. BOTH THE OWNERS BELONG TO THE BND GROUP, THEREFORE, THE INFORMATION REGARDING THE USE OF DREDGERS FOR THE PERIOD PRIOR TO CONTRACT AND AFTER THE CONTRACT SHOULD BE AVAILABLE WITH THE BND. IN ABSENCE OF THE ACTUAL HIRE CHARGES RECE IVED FOR THE DREDGERS FROM THE AFFILIATED/ UNRELATED ENT ITIES DURING THE PERIOD PRIOR AND AFTER OF THE USE BY BND -PO AND BND AND ALSO THE HUGE TIME GAP BETWEEN THE DATE OF QUOTATIONS AND ACTUAL USE OF THE DREDGERS IN IND IA, NO COGNIZANCE TO THE QUOTES OBTAINED CAN BE GIVEN, THEREFORE, THESE QUOTES USED BY ASSESSEE AS INTERNA L COMPARABLES ARE REJECTED. 10. THE TPO ACCORDINGLY REJECTED THE INDEPENDENT QUOTAT IONS AS WELL AS THE INDEPENDENCE OF THE AGREEMENT BETWEEN W LPZ AND ASSESSEE. 11. HAVING REJECTED THESE CERTIFICATES, TPO EXAMINED TH E VG BOUW CERTIFICATES. TPO ACCEPTED THAT THE VG BOUW VA LUATION CERTIFICATE OR THE VG BOUW VALUATION NORMS FOR THE DREDGER CAN QUALIFY AS COMPARABLE UNCONTROLLED TRANSACTION SINC E THESE WERE OBTAINED IN OCTOBER, 2002. HE ACCORDINGLY PROCEEDED TO USE VG ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 9 OF 37 BOUW CERTIFICATE FOR DETERMINING THE ARMS LENGTH PR ICE. HE FOUND THAT CLAIM OF EXCESSIVE WEAR AND TEAR WAS UNJUSTIFI ED AND HELD THE PRICE MENTIONED IN THE ORIGINAL CERTIFICATE AS THE VALUE AT ARMS LENGTH PRICE. THE CLAIM OF OVERHEAD COST OF ASSESSE E WAS ALSO REJECTED BY HIM. THE CLAIM OF ASSESSEE OF ADJUSTMEN T FOR MARKET CONDITIONS WAS ACCEPTED IN PART BY THE TPO. HOWEVER , THE ADJUSTMENT WAS RESTRICTED TO 1.29% BEING THE ADJUST MENT SHOWN IN THE CASE OF SAGA VESSEL OF EURO 2,201 PER WEEK ON R ENTAL PER WEEK OF EURO 1,70,564. THE TPO ACCORDINGLY COMPUTED THE ARMS LENGTH PRICE AS UNDER: ACTIVITY/ DREDGER CHARTER HIRE RATES AS PER VG BOUW (EURO) ADJUSTMENT FOR MARKET CONDITION (EURO) ARMS LENGTH RATE (EURO) DIFFERENCE PER WEEK (EURO) PERIOD (WEEKS) DIFFERENCE BETWEEN CHARGES PAID AND CHARGES AT ARMS LENGTH (EURO OPERATIONS: SAGA 2,201 1,72,765 28,845 1.57 45, 286 HECTOR 2,07,361 2,675 2,10,036 57,399 8.00 4,59,192 MOBILIZATION/DEMOBILIZATION : SAGA 1,44,937 2,201 1,47,138 32,660 4.43 1,44,418 HECTOR 1,35,060 2,675 1,37,735 44,829 2.57 1,15,210 TOTAL 6,57,922 9,752 6,67,674 1,63,733 16.57 7,64,106 12. THE DIFFERENCE PER WEEK HAS BEEN COMPUTED BY THE TP O IN TERMS OF RATE AND THEREAFTER MULTIPLYING THE PERIOD OF HIRE, ACTUAL DIFFERENCE HAS BEEN COMPUTED IN THE CHART ABOVE. TH E TOTAL DIFFERENCE IS OF EURO 7,64,106/- EQUIVALENT TO ` .3,24,32,184/-. OUT OF THIS, ADDITION DREDGER WISE IS AS UNDER: SAGA EURO 1,89,704 ` .80,51,038 HECTOR EURO 5,74,402 `.2,43,77,621 TOTAL `.3,24,28,659 ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 10 OF 37 THE AO COMPUTED THE ADDITION AT ` .3,24,32,184/- AS AGAINST THE CORRECT VALUE OF ` .3,24,28,659/-. EXCESS COMPUTATION ` .3,525/- WAS DELETED BY CIT(A). 13. ASSESSEE MADE SUBMISSIONS BEFORE THE CIT (A) RAISIN G VARIOUS CONTENTIONS I.E. 1. THAT ASSESSEE WAS NOT AN AE AT THE TIME OF ENTERING INTO THE AGREEMENT THEREFORE, PRICE PAID W AS ALP FOR HECTOR 2. TP PROVISION DOES NOT APPLY AS THE AGREEMENTS WE RE ENTERED PRIOR TO THESE PROVISIONS CAME ON STATUTE 3. PRICES WERE PAID ACCORDING TO THE EARLIER VALUES AGREED AND 4. QUANTIFICATION OF THE ADDITIONS BASED ON THE INDEPENDENT QUOTATIONS AS WELL AS VG B OUW CERTIFICATE AND VARIOUS RISK ADJUSTMENTS REQUIRED TO BE VERIFIE D/DONE. 14. THE LEARNED CIT (A) REJECTED THE RELIANCE ON THE V G BOUW CERTIFICATE BY STATING AS UNDER: 6.18 I AM THEREFORE, OF THE VIEW THAT TOO MUCH OF UNCERTAINTY IS ASSOCIATED WITH THE VG BOUW CERTIFIC ATE NAMELY; A) VALUATION ON THE BASIS OF NOTIONAL COST OF CONSTRUC TION AND NOTIONAL COST OF OPERATIONAL LEASE. B) SPECIFIC CONDITION REGARDING ADDITIONAL REPAIRS, EXCESSIVE WEAR & TEAR, OVERHEAD COST ETC., NOT BEIN G TAKEN INTO ACCOUNT. C) MARKET CONDITIONS, BEING THE DEMAND AND SUPPLY SITUATION AT THE RELEVANT TIME OF HIRING NOT BEING TAKEN INTO ACCOUNT. THESE UNCERTAINTIES ABOUT THE CORRECTNESS OF VALUAT ION MAKE SUCH A VG BOUW CERTIFICATE UNSUITABLE FOR ACTI NG AS ARMS LENGTH PRICE FOR COMPARISON PURPOSES. 15. AFTER REJECTING THE VG BOUW CERTIFICATE RELIED UPON BY THE TPO, THE LEARNED CIT (A) CONSIDERED THE THIRD PARTY QUOTATIONS WITH REFERENCE TO THE TWO DREDGING VESSELS ACQUIRED BY A SSESSEE AND ACCORDINGLY, HE DELETED THE ADDITION SO MADE BY STA TING AS UNDER: 6.19 ON THE OTHER HAND THE APPELLANT HAS PRODUCED TWO THIRD PARTY QUOTATIONS OFFERING THEIR RATES FOR HIRING ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 11 OF 37 OF DREDGER DURING THE CALENDAR YEAR 2001 & 2002. THESE QUOTATIONS ARE ON THE SAME TERMS AND CONDITIO NS AS APPLICABLE TO ACTUAL HIRING BY THE APPELLANT FRO M WLPZ. THESE PARTIES ARE INDEPENDENT PARTIES AND ARE UNRELATED TO THE APPELLANT. IT IS ACCORDINGLY HELD THAT THE RATES OFFERED BY THESE TWO PARTIES, NAMELY, DI & GL DD CAN BE TAKEN AS INDEPENDENT TRANSACTIONS FOR COMPARISON PURPOSES FOR PURPOSES OF SECTION 92C, BO TH IN RESPECT OF DREDGERS HECTOR AND SAGA. 6.20. ADDITIONALLY IN RESPECT OF DREDGER HECTOR, TH E TRANSACTION ENTERED INTO BY THE APPELLANT WITH WLPZ IS ITSELF AN INDEPENDENT TRANSACTION SINCE AT THE TIME OF CONTRACT, APPELLANT AND WLPZ WERE BOTH INDEPENDENT PARTIES. IN THE ABSENCE OF MATERIAL BROUGHT ON RECO RD BY AO, IT CANNOT BE SAID THE WLPZ AND APPELLANT WERE A ES. IT HAS FURTHER BEEN DISCUSSED IN THE EARLIER PARAGR APHS THAT THE DIFFERENCE BETWEEN THE RATE AT WHICH PAYME NT IS MADE TO WLPZ COMPARED TO THE QUOTATIONS OF GLDD AND DI IS VERY MINIMAL AND IS LESS THAN 5% OF THE A CTUAL PAYMENT. IT IS ACCORDINGLY HELD THAT THE TPO HAS WRONGLY MADE ADJUSTMENT IN RESPECT OF PAYMENT OF LEASE RENTAL REGARDING DREDGER HECTOR AND THUS ADDI TION MADE OF ` .2,43,77,621/- IS DELETED. 6.21. IN RESPECT OF SAGA, THE ISSUE WAS EXAMINED IN A.Y 2001-02 ALSO BY MY PREDECESSOR IN HIS ORDER DATED 17.12.2004 IN APPEAL NO. CIT(A)XXXI/DDIT (IT)1(1)/I T- 107/04-05. THE POSITION OF THE RATES AT WHICH THE PAYMENT HAS MADE FOR THE USE OF SAGA AND THE QUOTATIONS OF DI AND GLDD HAS ALREADY BEEN QUOTED I N PARA 6.11. THE PERCENTAGE DIFFERENCE TAKING THE ACT UAL PAYMENT AS BASIS IN DIFFERENT QUOTATIONS OF DI AND GLDD IS QUOTED IN PARA 6.12. 6.22 IT CAN BE SEEN THAT THE PERCENTAGE VARIATION BETWEEN THE QUOTES OF GLDD AND DI WITH THE ACTUAL PAYMENT IS LESS THAN 5%. SECTION 92C(2) READS AS UNDER: 92C. COMPUTATION OF ARMS LENGTH PRICE. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB-SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES, OR, AT THE OPTION ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 12 OF 37 OF ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PER CENT OF SUCH ARITHMETICAL MEAN. 6.23 PROVISO PROVIDES THAT AN ASSESSEE SHALL BE ALL OWED MARGIN OF 5% FROM THE ARITHMETICAL MEAN OF MORE THA N ONE PRICE COMPUTED BY THE MOST APPROPRIATE METHOD. IT CAN BE SEEN THAT IN THE CASE OF APPELLANT TWO INDEPENDENT QUOTATIONS FOR TAKING THE DREDGER ON HI RE HAVE BEEN FILED. IN THE ABSENCE OF EVIDENCE THAT TH E QUOTATIONS ARE NOT INDEPENDENT, THERE VERACITY HAS TO BE ACCEPTED. IN VIEW OF THIS, PROVISO TO SECTION 92C(2 ) WOULD BE APPLICABLE. AS EXPLAINED ABOVE, THE DIFFER ENCE BETWEEN THE QUOTED RATES OF THE DI AND GLDD WITH TH E ACTUAL RATES AT WHICH PAYMENTS HAVE BEEN MADE IS INDIVIDUALLY LESS THAN 5%. ACCORDINGLY, NO ADJUSTME NT IS REQUIRED TO BE MADE. IN VIEW OF THIS, ADDITION OF ` .80,51,038/- MADE IN RESPECT OF DREDGER SAGA IS DELETED. 6.24 CONSEQUENTLY THE TOTAL ADDITION OF ` .3,24,32,184/- MADE BY THE TPO IS DELETED. APPEAL ON GROUND OF APP EAL NOS. 6, 7 & 8 IS ALLOWED. 16. THE LEARNED CIT (DR) AFTER REFERRING TO THE FACTS S TATED ABOVE AND VARIOUS DOCUMENTS PLACED ON RECORD AND CONTENTI ONS TAKEN UP BY THE TPO SUBMITTED TWO FUNDAMENTAL QUESTIONS (1) WHETHER THE TWO QUOTATIONS CAN BE CONSIDERED AS UNCONTROLLED TR ANSACTIONS SO AS TO CONSIDER THEM UNDER THE CUP METHOD AND (2) WH ETHER THE RATES OF THE PRECEDING YEAR CAN BE CONSIDERED AS CU P IN THE ABSENCE OF ANY CONTEMPORANEOUS DATA. EXTENDING THE ARGUMENT S, HE REFERRED TO THE RULE 10B(1)(A) WITH REFERENCE TO TH E CUP METHOD SPECIFICALLY TO THE WORDS USED WITH REFERENCE TO PRICE CHARGED OR PAID WHICH CANNOT BE ACCEPTED IN A CASE OF A QUOTATION AND FURTHER TO RULE 10D(3) WITH REFERENCE TO DOCUMENTS TO SUBMIT T HAT THE QUOTATIONS CANNOT BE CONSIDERED AS AUTHENTIC DOCUME NTS AS PER RULE 10D(3) . IT WAS FURTHER HIS ARGUMENT THAT THE LEARNED CIT ( A) REJECTED THE VG BOUW CERTIFICATE STATING THAT IT HA S TOO MUCH UNCERTAINTIES WHEN THE CERTIFICATES ISSUED WERE CON TEMPORANEOUS AS DISCUSSED BY THE TPO AND THE SAME CAN ALSO BE TAKEN AS AN AUTHENTIC DOCUMENT BASED ON THE DECISION OF THE COO RDINATE BENCH ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 13 OF 37 IN THE CASE OF RELIANCE INDUSTRIES LTD IN ITA NO.30 82/MUM/2006 DATED 28.05.2012. IT WAS FURTHER SUBMITTED THAT UND ER RULE 10D(3), PUBLISHED DATA CAN BE ACCEPTED. THEREFORE, VG BOUW CERTIFICATE CAN BE CONSIDERED AS DATA AVAILABLE IN PUBLIC DOMAIN OR THE AUTHENTICATED SO THE CIT (A) WAS NOT CORRECT IN REJ ECTING THE SAME. WITH REFERENCE TO THE RELIANCE ON THE TWO QUOTATION S, THE LEARNED DR FURTHER SUBMITTED THAT THE QUOTATIONS PERTAIN TO EA RLIER YEARS AND THAT CANNOT BE CONSIDERED AS CONTEMPORANEOUS DATA S O AS TO CONSIDER DURING THE FINANCIAL YEAR DURING WHICH ASS ESSEE UTILIZED THE DREDGER. HE SUBMITTED THAT THE CIT (A) ERRED IN REJECTING THE VG BOUW CERTIFICATE AND THE ANALYSIS OF THE TPO AND RE LYING ON THE QUOTATIONS WHICH CANNOT BE CONSIDERED AS DOCUMENTS FOR THE PURPOSE OF CUP METHOD. WITH REFERENCE TO GROUND NOS . 2 & 3, IT WAS FAIRLY ADMITTED THAT THESE GROUNDS DOES NOT AFF ECT ULTIMATE DETERMINATION OF ALP, THEREFORE, THEY ARE MORE OF A CADEMIC IN NATURE. 17. PER CONTRA, THE LEARNED COUNSEL SUBMITTED THAT THE DREDGER PROJECT WAS IN PROGRESS FOR MORE THAN THREE YEARS A ND THE ASSESSEE WAS USING DREDGERS FOR INDIAN CONTRACT FROM THE YEA R 2000 ONWARDS. THEREFORE, THE AGREEMENTS WERE ENTERED EARLIER FOR HIRING DREDGER SAGA AND HECTOR AND THE AMOUNTS WERE PAID ACCORDING TO THE AGREED MANDATE OF EARLIER YEARS. THERE IS NO DISPUT E WITH REFERENCE TO THE PRICES PAID WHICH ARE SIMILAR FROM THE TIME OF ENTERING INTO THE AGREEMENTS. IT WAS FURTHER SUBMITTED THAT IN EA RLIER ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2001-02 WHEN THE TRANSFER PRICING PROVISIONS WERE NOT MADE APPLICABLE, AO INVOKED THE PROVISIONS OF SECTION 40A(2) WITH REFERENCE TO DREDGER SAGA AND O N THE BASIS OF THE QUOTATIONS AVAILABLE FROM THIRD PARTY WHICH WAS SUBMITTED AS INTERNATIONAL CUP EARLIER, SMALLER AMOUNT OF ADDITI ON WAS SUSTAINED BY THE CIT (A) WHICH WAS CONFIRMED BY THE ITAT. IT WAS THE SUBMISSION THAT ON THE BASIS OF THE SAME QUOTATIONS AVAILABLE AT THE ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 14 OF 37 TIME OF ENTERING INTO THE AGREEMENT, SINCE THERE IS NO CHANGE IN FACTS IN THE LATER YEARS, THE QUOTATIONS CAN BE ACC EPTED VIDE RULE 10D(4) AS THE INTERNATIONAL TRANSACTIONS CONTINUE T O HAVE EFFECT OVER MORE THAN ONE YEAR. HE SUPPORTED THE ORDER OF THE CIT (A). 18. WITH REFERENCE TO THE ARGUMENT OF THE LEARNED CIT ( DR) THAT THE QUOTATIONS PERTAIN TO THE EARLIER YEARS AND CAN NOT BE ACCEPTED FOR THIS FINANCIAL YEAR, THE LEARNED COUNSEL REFERR ED TO THE PROVISIONS OF RULE 10B(4) WHICH SPECIFICALLY EMPOWERED THE DAT A RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALSO BE CONSIDERED. IT WAS HIS SUBMISSION THAT THE QUOTATIONS OBTAINED AT THE TIME OF ENTERING INTO THE AGREEMENT CAN ALSO BE CONSIDERED. 19. WITH REFERENCE TO DREDGER HECTOR IT WAS SUBMITTED T HAT ASSESSEE PAID HIRE CHARGES OF ` .11,07,55,779 TO WLPZ FOR CHARGING THE DREDGER HECTOR AT THE RATE FIXED VIDE AGREEMENT DATED 21.12.2000 AND THE TRANSACTIONS ENTERED INTO BY ASS ESSEE WITH WLPZ WAS ITSELF AN INDEPENDENT TRANSACTION SINCE AT THE TIME OF ENTERING INTO CONTRACT ASSESSEE AND THE WLPZ WERE B OTH INDEPENDENT PARTIES AND NOT ASSOCIATED ENTERPRISES, EVEN THOUGH AT THE TIME OF PAYMENT THE SAID WLPZ BECAME AN ASSOCIA TED ENTERPRISE. THE SUBMISSION WAS THAT THE PRICE PAID WAS DETERMINED WHEN THE PARTIES WERE INDEPENDENT. THEREFORE, THERE IS NO NEED FOR RE-DETERMINING THE ALP WHEN THE TRANSACTIONS ITSELF WAS ENTERED AT ALP LEVEL. HE SUBMITTED A DETAILED NOTE WITH REFERE NCE TO ENTERED INTO USED IN THE PROVISIONS. THE NOTE IS AS UNDER: AS PER THE RULE 10B(4) OF THE RULES, THE DATA TO BE USED IN ANALYSING THE COMPARABILITY OF AN UNCONTROLLED TRAN SACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TR ANSACTION HAS BEEN ENTERED INTO. FURTHER, RULE 1OD(1) OF THE RULES REQUIRES EVERY PERSON WHO 'HAS ENTERED INTO AN ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 15 OF 37 INTERNATIONAL TRANSACTION TO KEEP AND MAINTAIN PRESCRIBED INFORMATION AND DOCUMENTS, THAT HAVE A BEARING ON THE TRANSACTION ENTERED INTO BY THE ASSE SSEE. THIS CLEARLY SHOWS THAT DATA/CIRCUMSTANCES PREVAILI NG AT THE TIME OF ENTERING INTO THE AGREEMENT ARE ONLY RE LEVANT AND NOT THE SUBSEQUENT POSITION. IN THIS CONTEXT, STRONG RELIANCE IS PLACED BY THE ASSESSEE ON RULING BY US COURT OF LAW IN THE CASE O F DHL CORPORATION. THOUGH THE RULING WAS WITH REFERENCE TO SECTION 482 OF THE US TAX LAW, THE PRINCIPLE LAI D DOWN BY THE US COURT CAN BE APPLIED IN THE INDIAN CONTEXT. IN THE SAID CASE, THE TRANSACTION ENTERED BETWEEN DHL ENTITIES WAS BASED ON THE TERMS DECIDED AT THE TIME WHEN THESE ENTITIES WERE RELATED PARTIE S. HOWEVER, AT THE TIME WHEN THE ACTUAL TRANSACTION WA S CARRIED OUT, THE SAID ENTITIES WERE NOT RELATED. IN OTHER WORDS, THE CIRCUMSTANCES PREVAILING IN CASE OF DHL WERE OPPOSITE OF THE CIRCUMSTANCES IN THE INSTANT C ASE (I.E. REVERSE CASE). THE US COURT OF LAW HAD OBSERV ED THE FOLLOWING IN CONNECTION WITH THE TIMING OF ANAL YSIS FOR ASCERTAINING WHETHER THE TRANSACTION ENTERED IN TO BETWEEN DHL ENTITIES WOULD BE GOVERNED BY TRANSFER PRICING REGULATIONS AS INCORPORATED IN SECTION 482 OF US IRS. 'TIMING OF THE ANALYSIS .... RELEVANT TIME PERIOD FOR DETERMINING WHETHER COMMON CONTROL EXISTED FOR PURP OSES OF SECTION 482, .... , IS THE PERIOD OF NEGOTIATION AND COMPLETION OF THE TRADEMARK OPTION AGREEMENT BETWEE N DHL, DHLI, AND THE CONSORTIUM. THAT IS, THE ENDPOIN T FOR THE PERIOD OVER WHICH THERE NEEDED TO BE COMMON CON TROL WITHIN THE MEANING OF SECTION 482 WAS THE COMPLETION OF THE BINDING OPTION AGREEMENT. THE ECONOMIC REALITY OF THE TRANSACTION WAS THAT THE PRICE OF THE TRADEMARK WAS ESTABLISHED AT THE TIME THE CONSORTIUM OBTAINED THE OPTION TO BUY IT AT THE SPECIFIED PRICE. THE ULTIMATE PURC HASE OF THE TRADEMARK AT THAT PRICE MERELY RATIFIED THE PRI CE THAT HAD BEEN ESTABLISHED AT THE EARLIER TIME THUS, WE NEED NOT DETERMINE WHETHER THERE WAS SUFFICIENT COMMON CONTROL FOR SECTION 482 PURPOSES AT THE TIME THE TRADEMARK OPTION WAS EXERCISED. THIS TRANSACTIONAL APPROACH FOR DETERMINING COMMON CONTROL UNDER SECTION 482 COMPORTS WITH COMMON SENS E, AND THE REGULATIONS, WHICH STATE THAT 'IT IS THE RE ALITY OF THE CONTROL WHICH IS DECISIVE, NOT ITS FORM OR THE MODE OF ITS EXISTENCE.' ('TAX CONSEQUENCES MUST TURN UPON T HE ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 16 OF 37 ECONOMIC SUBSTANCE OF A TRANSACTION AND NOT UPON THE TIME SEQUENCES OR FORM OF THE TRANSACTION.') ACCORDINGLY, THE US COURT LAW RULED THAT, AS THE TE RMS OF THE TRANSACTION WERE DECIDED BETWEEN RELATED/ENTITIES THE SAID TRANSACTION WOULD STILL R EQUIRE ARM'S LENGTH COMPLIANCE EVEN THOUGH AT THE TIME OF ENTERING INTO THE TRANSACTION, TWO ENTITIES WERE NO T RELATED. APPLYING THE RATIO OF THE DECISION IN THE CASE OF DHL TO THE FACTS OF BNDS CASE, IT IS SUBMITTED FOR DETERM INING WHETHER THE TRANSACTION OF CHARTER HIRE OF HECTOR, THE CONDITIONS PREVAILING AT THE TIME OF THE AGREEMENT IS RELEVANT. FURTHER IT IS RESPECTFULLY SUBMITTED THAT THE CHARTER HIRE CHARGES AS DETERMINED BETWEEN TWO NON AES WERE UNCHANGED EVEN AFTER THE TWO ENTITIES BECAME AES. THEREFORE, AS THE TERMS OF THE TRANSACT ION FOR CHARTER HIRE WERE DECIDED BETWEEN BND AND WLPZ VIDE AGREEMENT DATED DECEMBER 21, 2000 WHEN WLPZ WAS NOT AN AE OF BND, SUCH TRANSACTION WAS AN UNCONTROLLED TRANSACTION ENTERED BETWEEN TWO ENTERPRISES WHICH ARE NOT AES AND THUS THE CHARTER HIRE AGREEMENT IS NOT SUBJECT TO TRANSFER PRICING REGULATIONS. 20. WITH REFERENCE TO THE AGREEMENT WITH SAGA, HE RELIE D MORE ON THE ORDER OF THE CIT (A) FOR ASSESSMENT YEAR 2001-0 2 WHEN CERTAIN ADDITIONS WERE MADE UNDER SECTION 40A(2) BASED ON THE QUOTATIONS ITSELF. IN VIEW OF THIS, IT WAS THE SUBMISSION THAT THE QUOTATIONS WERE TAKEN AS VALID DOCUMENTS. HE FURTHER REFERRED TO TH E WORD USED IN RULE 10D(3) WHICH IS AS UNDER: (3) THE INFORMATION SPECIFIED IN SUB-RULE (1) SHAL L BE SUPPORTED BY AUTHENTIC DOCUMENTS, WHICH MAY INCLUDE THE FOLLO WING REFERRING TO THE WORD USED MAY INCLUDE THE LEARNE D COUNSELS ARGUMENT WAS THAT IN ADDITION TO WHATEVER IS PRESCR IBED UNDER THE HEADING (A) TO (G), OTHER DOCUMENTS CAN ALSO BE CON SIDERED AS AUTHENTIC. SINCE RULE 10D(3) DOES NOT USE THE WORD SHALL THEREFORE, THERE IS NO RESTRICTION PLACED UNDER THE RULES FOR USE OF QUOTATIONS. IT WAS FURTHER SUBMITTED THAT THE TRANS FER PRICING ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 17 OF 37 ANALYSIS IS AN ART AND NOT AN EXACT SCIENCE AND THE TPO HAS TO DETERMINE THE INCOME ARISING FROM AN INTERNATIONAL TRANSACTIONS HAVING REGARD TO THE ALP AND HE CAN TAKE INTO CONSI DERATION ALL OTHER FACTORS IN ARRIVING AT THE ALP. WITH REFERENC E TO THE VG BOUW CERTIFICATE REJECTED BY THE CIT (A) AS HAVING TOO M ANY UNCERTAINTIES, THE LEARNED COUNSEL SUBMITTED THAT THE TPO HAS ACCE PTED BOTH THE CERTIFICATES AND INSTEAD OF CONSIDERING THE 2 ND CERTIFICATE WHICH CLARIFIED SOME RESERVATIONS PLACED IN THE FIRST CER TIFICATE, THE TPO WORKED OUT THE ALP ON THE BASIS OF THE FIRST CERTIF ICATE WITHOUT CONSIDERING THE OTHER AMOUNTS/ASPECTS SPECIFIED IN 2 ND CERTIFICATE. HE REFERRED TO THE OBJECTIONS PLACED BEFORE THE CIT (A). WITH REFERENCE TO THE ADJUSTMENT NOT CONSIDERED BY AO AN D THE MISTAKES COMMITTED BY HIM AS ACCEPTED BY THE CIT (A), IT WAS HIS SUBMISSION THAT WHETHER THE QUOTATIONS WERE TAKEN AS A BASIS O R AS A VG BOUW CERTIFICATE AS A BASIS, ASSESSEES PRICE PAID IS TO BE CONSIDERED AS ALP AS PER THE PROVISIONS OF THE ACT AND THEREFORE, THE ORDER OF THE CIT (A) REQUIRED CONFIRMATION. 21. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS. AS SEEN FROM THE ORDER OF THE TPO, IT IS NOTICED THAT THE TPO REJECTED TWO QUOTATIONS AS NOT OF CONTEMPORANEO US DATA IGNORING THE FACT THAT THE AGREEMENTS WERE ENTERED IN AN EARLIER YEAR AND ASSESSEE HAS PAID THE PRICES ACCORDING TO THE O RIGINALLY AGREED AMOUNTS. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT THE CONTRACT WAS SPREAD OVER THREE YEARS AND ASSESSEE H AVING ENTERED INTO AGREEMENT WAY BACK IN JANUARY/ DECEMBER 2000 C ONTINUED TO PAY THE AMOUNT AS PER THE ORIGINALLY AGREED AMOUNTS . THE QUOTATIONS OBTAINED WERE CONTEMPORANEOUS TO THE DAT E OF THE AGREEMENT AND THEREFORE, IN OUR OPINION THE TPO REJ ECTED THE QUOTATIONS WITHOUT ANY BASIS. ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 18 OF 37 22. AS SEEN FROM RULE 10B(4), IT IS SPECIFIED AS UNDER : RULE 10B(4): THE DATA TO BE USED IN ANALYSING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH A N INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATIN G TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO : PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALS O BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD H AVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICE S IN RELATION TO THE TRANSACTIONS BEING COMPARED THE RULE PERMITS DATA RELATING TO THE FINANCIAL YEA R IN WHICH INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. IN THIS CASE THE INTERNATIONAL TRANSACTION CONTINUES TO HAVE EFFECT FOR MORE THAN THREE YEARS I.E. FROM ASSESSMENT YEAR 2000-01 ONWAR DS. IT IS ADMITTED THAT DURING 2000-01 AND 2001-02 CHAPTER X SPECIAL PROVISIONS RELATING TO TRANSFER PRICING WERE NOT ON STATUTE BUT THAT DOES NOT PREVENT ASSESSEE IN CONTENDING THAT FRESH DOCUMENTS NEED NOT BE MAINTAINED/ OBTAINED SEPARATELY IN RESPECT O F EACH PREVIOUS YEAR WHEN THERE IS NO CHANGE IN THE NATURE OR TERMS OF THE INTERNATIONAL TRANSACTION. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE TWO QUOTATIONS RELIED UPON BY ASSESSEE CAN BE A CCEPTED AS CONTEMPORANEOUS DOCUMENTS IN ORDER TO EXAMINE THE A LP. 23. WE ARE ALSO NOT CONVINCED WITH THE ARGUMENT S OF THE LEARNED CIT (DR) THAT THE QUOTATIONS CANNOT BE TAKEN AS AUT HENTIC DATA. EVEN THOUGH THE CUP METHOD AS PRESCRIBED IN RULE 10 B(1)(A) USED THE WORD THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRAN SACTION, THE TPO HIMSELF ACCEPTED THE VG BOUW CERTIFICATE WHILE DETERMINING THE ALP UNDER THE CUP METHOD. EVEN IN THE CASE OF VG BO UW CERTIFICATE THIS IS NO PRICE CHARGED OR PAID BUT ONLY A CERTI FICATE GIVEN ABOUT THE AUTHENTICITY OF THE PRICES QUOTED. IN THE CASE RELIED UPON BY THE ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 19 OF 37 LEARNED DR OF RELIANCE INDUSTRIES IN ITA NO.3082/MU M/2006 DATED 28.05.2012, THE ITAT HAS OBSERVED AS UNDER: 12.9 NEITHER THE ASSESSEE, NOR THE TPO, NOR THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) HAS FOLLOWED ANY OF THE METHOD PRESCRIBED IN THE ACT AN D RULES, FOR ARRIVING AT THE ARM'S LENGTH PRICE. THE ASSESSEE'S CASE WAS THAT THE CHARTER HIRE CHARGES W ERE APPROVED BY THE D.G. (SHIPPING) AND, HENCE, IT IS A COMPARABLE UNDER THE 'CUP' METHOD. THE TPO TOOK THE AVERAGE OF THE RATE PUBLISHED BY THE SHIPPING INTEL LIGENCE WEEKLY AND DREWRY MONTHLY, WHICH IS THE RATES IN TH E PUBLIC DOMAIN AND WITHOUT MAKING ANY ADJUSTMENT FOR VARIATION IN CAPACITY, COST, FINANCE, RISK, ETC., C OMPUTED THE ARM'S LENGTH PRICE. THE COMMISSIONER (APPEALS) TOOK THE MEAN OF THE ARM'S LENGTH PRICE DETERMINED BY TH E TPO AND PRICE ACTUALLY PAID BY THE ASSESSEE AND DETERMI NED THE ARM'S LENGTH PRICE. THUS, THE ASSESSEE AS WELL AS THE AUTHORITIES HAVE NOT COMPUTED THE ARM'S LENGTH PRIC E IN ACCORDANCE WITH LAW. HENCE, WE HAVE TO QUASH THE AR M'S LENGTH PRICE DETERMINED BY ALL THE PARTIES. 12.10 BOTH THE PARTIES AGREED BEFORE US THAT THE 'C UP' METHOD SHOULD BE FOLLOWED. AS THERE IS NO COMPARABL E TRANSACTIONS, IN VIEW OF THE FACT THAT 'REICHEM ISH A', IS A UNIQUE VESSEL, WITH NO COMPARABLE SHIP AVAILABLE, A S SUGGESTED BY BOTH THE PARTIES, WE SET ASIDE THE ISS UE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED P URPOSE OF RE--COMPUTING THE ARM'S LENGTH PRICE BY TAKING THE DATE AVAILABLE IN THE PUBLIC DOMAIN IN THE FORM OF PUBLI CATION OF SHIPPING INTELLIGENCE WEEKLY AND DREWRY MONTHLY AS A 'COMPARABLE PRICE', AND THEREAFTER TO MAKE VARIOUS ADJUSTMENTS TOWARDS WEIGHT, CAPITAL COST, RISK, ETC ., AND THEN ARRIVE AT THE ARM'S LENGTH PRICE. THE ASSESSEE HAS FURNISHED ITS CALCULATION. THE ASSESSING OFFICER SH ALL EXAMINE THIS CALCULATION OF ARM'S LENGTH PRICE GIVE N BY THE ASSESSEE WHEREIN VARIOUS ADJUSTMENTS ARE CLAIMED ON ACCOUNT OF VARIATION AND ARRIVE AT THE ARM'S LENGTH PRICE. NEEDLESS TO SAY, OPPORTUNITY OF BEING HEARD SHOULD BE GIVEN TO THE ASSESSEE. HERE ALSO IN THE ABOVE CASE, THE QUOTATIONS FROM TH E SHIPPING INTELLIGENCE WEEKLY AND DREWRY MONTHLY WERE CONSIDE RED. THEREFORE, THE VG BOUW CERTIFICATE WHICH IS AN INTE RNATIONALLY ACCEPTED BODY CAN ALSO BE CONSIDERED ON SIMILAR LIN E UNDER THE CUP ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 20 OF 37 METHOD, EVEN THOUGH THERE IS NO PRICE PAID OR CHAR GED AS PROVIDED UNDER THE RULES. THEREFORE, THE OBJECTION RAISED BY THE DR IS NOT ACCEPTED ON THE GIVEN FACTS OF THIS CASE, WHEREIN T HE TPO HIMSELF HAS ACCEPTED THE FIRST VG BOUW CERTIFICATE TO DETER MINE THE ALP. THE OBJECTION RAISED BY THE LEARNED CIT (DR) CANNOT BE CONSIDERED AT THIS POINT OF TIME, HENCE REJECTED. 24. NOW COMING TO THE ISSUE OF ALP, WE DO NOT SEE A NY REASON TO DIFFER FROM THE FINDINGS OF THE CIT (A) AS FAR AS T HE PRICE FOR DREDGER SAGA IS CONCERNED. FIRST OF ALL, AS SUBMITTED BY TH E LEARNED COUNSEL THE PRICES PAID WERE THE SAME AS AGREED UPON WAY BACK ON 05.01.2000 AND AT THAT POINT OF TIME THERE WERE QUO TATIONS FROM THIRD PARTIES ON THE BASIS OF WHICH AN AMOUNT OF ` .32,17,492 WAS CONSIDERED TO BE THE DIFFERENCE BETWEEN THE RATES O FFERED AND PRICE PAID IN ASSESSMENT YEAR 2001-02. THIS ISSUE WAS DEC IDED IN ITA NO.1541/MUM/2005 DATED 16.12.2009 WHEREIN THE ITAT CONSIDERING THE FACT HAS UPHELD THE ADDITIONS MADE AS UNDER: 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES. WE HAVE CAREFULLY CONSIDERED THE REASONING GIVEN BY AO AS WELL AS THE LEARNED CIT (A). FROM THE ASSESSM ENT ORDER, IT APPEARS THAT THOUGH AO HAS TAKEN PAINS TO BRING ON RECORD THE TECHNICAL SPECIFICATIONS OF BOT H THE DREDGERS NAMELY SAGA AND PACIFIQUE BUT WE ARE N OT AGREEING WITH THE ESTIMATION MADE BY HIM WHICH IS O NLY BASED ON THE HOPPER CAPACITY OVERFLOW WHICH IN RESPECT OF THE SAGA IS SHOWN AT 3900 M3 AND IN CA SE OF PACIFIQUE 9208 MC. AO COULD HAVE TAKEN MORE PAINS TO GO INTO THE DETAILS OF THE OTHER TECHNICAL SPECIFICATIONS TO SHOW THAT THE DREDGING CASE OF PACIFIQUE IS MUCH MORE HIGHER IN CAPACITY THAN TH E SAGA. ADMITTEDLY, THE SAGA IS PAID LESSER HIRE CHARGES COMPARED TO THE PACIFIQUE. MOREOVER, THE ANOTHER UNRELATED COMPANY NAMELY GLDC HAS OFFERED THE HIRE CHARGES TO M/S. BNBE, WHICH COMPANY IS OWNING THE SAGA. AS PER THE FACTS ON RECORD, THE ONLY DIFFERENCE BETWEEN THE RATES OFFERED WAS TO THE TUN E OF ` .32,17,492/- AND TO THAT EXTENT, THE LEARNED CIT (A ) HAS RIGHTLY SUSTAINED THE ADDITION. IN OUR OPINION, THERE ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 21 OF 37 IS NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) ON THIS ISSUE. WE THEREFORE, CONFIRM THE SAME. 25. IN THIS YEAR THE VARIATION FROM THE PRICE QUOTE D AND THE PRICE PAID IS LESS THAN +/- 5% AS PERMITTED. THEREFORE UN DER THE PROVISIONS NO ADJUSTMENT NEED BE MADE. 26. SIMILARLY IN THE CASE OF DREDGER HECTOR EVEN TH OUGH THERE IS NO DISPUTE WITH REFERENCE TO THE EXAMINATION OF THE IN TERNATIONAL TRANSACTIONS IN THIS YEAR UNDER THE PROVISIONS OF T RANSFER PRICING, WHILE DETERMINING THE ALP WHAT IS REQUIRED TO BE CO NSIDERED IS WHETHER THE PRICE PAID HAS ANY SIGNIFICANT IMPACT O N THE INCOME. AS SUBMITTED BY ASSESSEE, THE AGREEMENT WAS ENTERED WH EN THE ENTITIES ARE INDEPENDENT AND THEREFORE, THE PRICE P AID CAN BE CONSIDERED AT ARMS LENGTH. MOREOVER, ASSESSEE ALSO JUSTIFIED THE PRICE PAID IS WITHIN THE PERMITTED RANGE OF +/- 5% IN BOTH THE CASES, THE FACT OF WHICH WAS ACCEPTED BY THE CIT (A). THE RELEVANT COMPUTATIONS ON THE BASIS OF THE TWO QUOTATIONS ARE AS UNDER: COMPUTATION OF ARMS LENGTH RANGE OF PRICE ACTUAL PAYMENT VIS-- VIS QUOTES RECEIVED FROM M/S DREDGING INTERNATIONAL (DI) AMOUNTS IN NLG PARTICULARS SAGA HECTOR OPERATIONAL (PER WEEK) MOB/DEMOB (PER WEEK) OPERATIONAL (PER WEEK) MOB/DEMOB (PER WEEK) QUOTES FROM UNRELATED PARTY A 438,411 387,443 579,953 395,451 PRICE RANGE OF 5% (AS PER PROVISO TO SECTION 92C(2) OF THE ACT B=A *95% C=A* 105% 416,490 460,332 368,071 406,815 550,955 608,951 375,678 415,224 ARMS LENGTH PRICE (AS THIS IS A PAYMENT PRICE RANGE IS TAKEN AT +5%) C 460,332 406,815 608,951 415,224 ACTUAL PAYMENT MADE BY ASSESSEE FOR CHARTER HIRE CHARGES D 444,290 396,222 589,349 402,318 DIFFERENCE BETWEEN THE ACTUAL PAYMENT AND ARMS LENGTH PRICE AFTER APPLYING PROVISO TO SECTION 92C(2) E=D-C (16,042) (10,593) (19,602) (12,906) ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 22 OF 37 COMPUTATION OF ARMS LENGTH RANGE OF PRICE ACTUAL PAYMENT VIS-- VIS QUOTES RECEIVED FROM M/S GREAT LAKES DREDGE AND DOCK COMPANY 9GLDD) AMOUNTS IN NLG PARTICULARS SAGA HECTOR OPERATIONAL (PER WEEK) MOB/DEMOB (PER WEEK) OPERATIONAL (PER WEEK) MOB/DEMOB (PER WEEK) QUOTES FROM UNRELATED PARTY A 437,968 388,732 581,334 393,713 PRICE RANGE OF 5% (AS PER PROVISO TO SECTION 92C(2) OF THE ACT B=A*95% C=A*105% 416,070 459,866 369,295 408,169 552,267 610,401 374,027 413,399 ARMS LENGTH PRICE (AS THIS IS A PAYMENT PRICE RANGE IS TAKEN AT +5%) C 459,866 408,169 610,401 413,399 ACTUAL PAYMENT MADE BY ASSESSEE FOR CHARTER HIRE CHARGES D 444,290 396,222 589,349 402,318 DIFFERENCE BETWEEN THE ACTUAL PAYMENT AND ARMS LENGTH PRICE AFTER APPLYING PROVISO TO SECTION 92C(2) E=D-C (15,576) (11,947) (21,052) (11,081) THE ACTUAL PAYMENT MADE BY THE APPELLANT ARE WITHIN THE 5% RANGE AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT. 27. SINCE THE PRICE PAID IN BOTH THE CASES IS WITHI N THE +/-5% RANGE OF THE QUOTATIONS AVAILABLE AT THE TIME OF ENTERING INTO THE AGREEMENT, WE ARE OF THE VIEW THAT THERE IS NO NEED FOR MAKING ANY ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 23 OF 37 ADDITION ON THE BASIS OF THE DATA AVAILABLE ON RECO RD AND ACCORDINGLY THE CIT (A) ORDER IS TO BE CONFIRMED. 28. EVEN WITH REFERENCE TO THE VG BOUW CERTIFICATE, THERE IS NO DISPUTE WITH REFERENCE TO THE AUTHENTICITY OF THE V G BOUW CERTIFICATE AND ITS USE IN THE ANALYSIS OF ARMS LENGTH PRICE DE TERMINATION UNDER CUP METHOD BY THE TPO. WHAT THE TPO HAS DONE IS ONLY RELIANCE ON THE FIRST CERTIFICATE STATING THAT IT I S CONTEMPORANEOUS, WHEREAS THE 2 ND CERTIFICATE ISSUED ON THE BASIS OF THE FIRST CERTI FICATE CLARIFYING CERTAIN RESERVATIONS MADE IN THE FIRST C ERTIFICATE WAS NOT ACCEPTED. SINCE THE CERTIFICATES ITSELF WERE AUTHEN TICATED, THE ONLY EXERCISE TPO COULD HAVE BEEN DONE IS TO EXAMINE WHE THER THE CONTENTIONS MADE THEREIN ARE CORRECT OR NOT. EVEN R ULE 10B(2) PERMITS VARIOUS ADJUSTMENTS WITH REFERENCE TO SPECI FIC CHARACTERISTICS, FUNCTIONS PERFORMED, CONTRACTUAL T ERMS & CONDITIONS PREVAILING IN THE MARKET INCLUDING GEOGR APHICAL LOCATION, SIZE OF THE MARKET, COST OF LABOUR, OVERALL ECONOMI C DEVELOPMENT, LEVEL OF COMPETITION ETC. THESE ASPECTS COULD HAVE BEEN CONSIDERED BY THE TPO BEFORE REJECTING THE 2 ND CERTIFICATE. IN OUR OPINION THE CIT (A) HAS RECORDED THE OBJECTIONS RAISED BY ASSES SEE AS VALID BUT REJECTED THE CERTIFICATE ON THE REASON THAT OF TOO MUCH UNCERTAINTIES. ASSESSEE IS ABLE TO JUSTIFY VARIOUS ADJUSTMENTS SO MADE TO ARRIVE AT THE ALP ON THE BASIS OF THE VG BOUW CERTIFICATE ALS O. IF WE EXAMINE THE CERTIFICATES AS SUCH BEFORE THE AUTHORITIES BY ASSESSEE, WE DO NOT SEE ANY REASON TO REJECT THE SAME. AS ALREADY STATED, THERE IS NO INDEPENDENT DATA AVAILABLE BEFORE THE TPO TO DET ERMINE THE ALP AND THE TPO HAS ONLY TO TWEAK THE TWO CERTIFICATES SO AS TO ARRIVE AT THE SO CALLED DIFFERENCE ON THE ALP. IF A PROPER AN ALYSIS WAS MADE, THERE WOULD NOT BE ANY DIFFERENCE FROM THE PRICE PA ID TO THE PRICE DETERMINED, AS ASSESSEE DEMONSTRATED BEFORE THE TPO BOTH ON THE BASIS OF THE THIRD PARTY QUOTATIONS WHICH ARE CONSI DERED AS INTERNAL CUP AND THE VG BOUW CERTIFICATES AS EXTERNAL CUP. U NDER BOTH ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 24 OF 37 WORKINGS ASSESSEE IS ABLE TO JUSTIFY THE PRICE PAID AND ON THAT REASON ALSO, WE HAVE TO ACCEPT ASSESSEES CONTENTIO NS. THEREFORE, WE DO NOT FIND ANY REASON TO DIFFER FROM THE ORDER OF THE CIT (A) WHICH IS ULTIMATELY ACCEPTABLE ON THE GIVEN FACTS OF THE CASE. IN VIEW OF THIS, THE REVENUE GROUNDS ARE REJECTED. 29. IN THE RESULT, THE REVENUE APPEAL IS DISMISSED . 30. EVEN THOUGH ASSESSEE HAS RAISED VARIOUS GROUNDS IN THE CROSS OBJECTIONS, THE GROUND NOS. 1 TO 3 WERE WITHDRAWN A S STATED EARLIER AND GROUND NO.4 IS WITH REFERENCE TO THE REJECTION OF THE VG BOUW CERTIFICATE BY THE CIT (A). THESE ASPECTS WERE ALRE ADY CONSIDERED IN THE REVENUE APPEAL AND THEREFORE, FRESH ADJUDICATIO N IS NOT REQUIRED. SINCE WE HAVE CONFIRMED THE ORDER OF THE CIT (A) CONSIDERING THE OBJECTIONS RAISED BY ASSESSEE, THE CROSS OBJECTION PER SE HAS BECOME ACADEMIC IN NATURE AND THEREFORE, THE C .O FILED BY ASSESSEE IS ALSO STANDS DISMISSED. 31. IN THE RESULT, THE C.O FILED BY ASSESSEE IS DISMISS ED. ITA NO.1591/MUM/2008 32. THIS IS A REVENUE APPEAL AGAINST THE ORDER OF THE C IT (A) DATED 3.12.2007 FOR ASSESSMENT YEAR 2003-04. THE RE VENUE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN HOLDING THAT T HERE IS NO ADJUSTMENT REQUIRED TO BE MADE WITH REGARD TO THE HIRE CHARGES PAID FOR THE VESSEL HECTOR AND ACCORDINGLY IN DIRECTING AO TO DELETE THE ADDITION OF ` .1,72,02,723/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING THE DISALLOWANCE OF ` .4,14,62,866/- ON ACCOUNT OF RELEASE OF RETENTION MONEY AGAINST ISSUE OF BANK GUARANTEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING THE DISALLOWANCE OF ` .22,46,641/- BEING EXPENSES ON REPAIR WORK FOR DREDGER. ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 25 OF 37 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING THE DISALLOWANCE OF CONTRIBUTION OF ` .3,15,000/- TO ANNUAL CELEBRATION OF THE NAVAL STAFF. 33. WE HAVE HEARD THE LEARNED DR AND THE LEARNED COUNSE L. 34. GROUND NO.1: THIS GROUND PERTAINS TO TP ADJUSTMENT MADE AGAINST THE DREDGER HECTOR BY THE TPO/AO OF ` .1,72,02,723. AS IN EARLIER APPEAL THE TPO REJECTED THE QUOTATIONS OBTA INED AT THE TIME OF ENTERING AGREEMENTS, TWEAKED THE VG BOUW CERTIFI CATE WITHOUT CONSIDERING THE REVISED CERTIFICATE, DETERMINED THE ALP AND ARRIVED AT DISALLOWANCE OF ABOVE AMOUNT UNDER TP PROVISIONS . THE CIT (A) AFTER REJECTING THE CONTENTIONS OF ASSESSEE ON JURI SDICTION ETC, HOWEVER, DELETED THE ADDITION BY STATING AS UNDER: 10.3 I HAVE GONE THROUGH THE FACTS OF THE CASE VER Y CAREFULLY. I HAVE ALSO GONE THROUGH THE APPELLATE O RDER PASSED BY CIT (A)-XXXI MUMBAI FOR A.Y. 2002-03. THE CIT (A)-XXXI MUMBAI HAS DEALT THE ISSUE VERY ELABOR ATELY AND HIS FINDINGS ARE AVAILABLE IN PARA 6.17 TO 6.24 OF THAT ORDER AND IT IS REPRODUCED BELOW: 6.17 I FIND THAT THE ADJUSTMENT MADE BY THE TPO IS WHOLLY ARBITRARY. THERE IS ABSOLUTELY NO WAY OF KNOWING AS TO WHAT IS THE MARKET CONDITION. MARKET CONDITION PRIMARILY MEANS THE DEMAND AND SUPPLY SITUATION. VG BOUW CERTIFICATE WORKING IS DONE ON THE BASIS OF NOTIONAL COST OF CONSTRUCTION OF AN EQUIVALENT DREDGER AND THEREAFTER PROVIDING FOR ITS MARKET LEASE AT CERTAIN RATES TAKING INTO ACCOUNT THE COST OF STANDARD REPAIRS NEEDED ETC. A DEMAND AND SUPPLY SITUATION IS A FLUCTUATING POSITION. THU S, A LEASE RENT OF PARTICULAR DREDGER MAY BE MUCH HIGHER OR LOWER THAN THE RATE PROVIDED BY THE VG BOUW CERTIFICATE DEPENDING UPON THE DEMAND AND SUPPLY SITUATION IN THE MARKET. IN OTHER WORDS, IT IS NOT POSSIBLE TO QUANTIFY THE ADJUSTMENT REQUIREMENT FOR MARKET CONDITIONS. 6.18 I AM THEREFORE, OF THE VIEW THAT TOO MUCH OF UNCERTAINTY IS ASSOCIATED WITH THE VG BOUW CERTIFICATE, NAMELY: A) VALUATION ON THE BASIS OF NOTIONAL COST OF CONSTRUCTION AND NOTIONAL COST OF OPERATIONAL LEASE . ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 26 OF 37 SPECIFIC CONDITION REGARDING ADDITIONAL REPAIRS, EXCESSIVE WEAR AND TEAR, OVERHEAD COST ETC. NOT BEING TAKEN INTO ACCOUNT. D) MARKET CONDITIONS BEING THE DEMAND AND SUPPLY SITUATION AT THE RELEVANT TIME OF HIRING NOT BEING TAKEN INTO ACCOUNT. THESE UNCERTAINTIES ABOUT THE CORRECTNESS OF VALUATION MAKE SUCH A VG BOUW CERTIFICATE UNSUITABLE FOR ACTING AS ARMS LENGTH PRICE FOR COMPARISON PURPOSES. 6.19 ON THE OTHER HAND, THE APPELLANT HAS PRODUCED TO THIRD PARTY QUOTATIONS OFFERING THEIR RATES FOR HIRING OF DREDGER DURING THE CALENDAR YEA R 2001 AND 2002. THESE QUOTATIONS ARE ON THE SAME TERMS AND CONDITIONS AS APPLICABLE TO ACTUAL HIRING BY THE APPELLANT FROM WLPZ. THESE PARTIES ARE INDEPENDENT PARTIES AND ARE UNRELATED TO THE APPELLANT. IT IS ACCORDINGLY HELD THAT THE RATES OFFERED BY THESE TWO PARTIES, NAMELY DI & GLDD CAN BE TAKEN AS INDEPENDENT TRANSACTIONS FOR COMPARISON PURPOSES FOR PURPOSES OF SECTION 92C, BOTH IN RESPECT OF DREDGER HECTOR AND SAGA. 6.20 ADDITIONALLY IN RESPECT OF DREDGER HECTOR, THE TRANSACTION ENTERED INTO BY THE APPELLANT WITH WLPZ IS ITSELF AN INDEPENDENT TRANSACTION SINCE AT THE TIME OF CONTRACT, APPELLANT AND WLPZ WERE BOTH INDEPENDENT PARTIES. IN THE ABSENCE OF MATERIAL BROUGHT ON RECORD BY AO, IT CANNOT BE SAID THE WLPZ AND APPELLANT WERE AES, IT HAS FURTHER BEEN DISCUSSED IN THE EARLIER PARAGRAPHS THAT THE DIFFERENCE BETWEEN THE RATE AT WHICH PAYMENT IS MADE TO WLPZ COMPARED TO THE QUOTATIONS OF GLDD AND DI IS VERY MINIMAL SAND IS LESS THAN 5% OF THE ACTUAL PAYMENT. IT IS ACCORDINGLY HELD THAT THE TPO HAS WRONGLY MADE ADJUSTMENT IN RESPECT OF PAYMENT OF LEASE RENTAL REGARDING DREDGER HECTOR AND THUS ADDITION MADE OF ` .2,43,77,621/- IS DELETED. 6.21 IN RESPECT OF SAGA, THE ISSUE WAS EXAMINED IN A.Y 2001-02 ALSO BY MY PREDECESSOR IN HIS ORDER DATED 17/12/2004 IN APPEAL NO.CIT (A) XXXI/DDIT (IT)-1(1)IT-107/04-05. THE POSITION OF THE RATES AT WHICH THE PAYMENT HAS MADE FOR THE USE OF SAGA AND THE QUOTATIONS OF DI AND GLDD HAS ALREADY BEEN QUOTED IN PARA 6.11. THE ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 27 OF 37 PERCENTAGE DIFFERENCE TAKING THE ACTUAL PAYMENT AS BASIS IN DIFFERENCE QUOTATIONS OF DI AND GLDD IS QUOTED IN PARA 6.12. 6.22 IT CAN BE SEEN THAT THE PERCENTAGE VARIATION BETWEEN THE QUOTES OF GLDD AND DI WITH THE ACTUAL PAYMENT IS LESS THAN 5%. SECTION 92C(2) READS AS UNDER: 92C COMPUTATION OF ARMS LENGTH PRICE (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES, OR, AT THE OPTION OF ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PER CENT OF SUCH ARITHMETICAL MEAN. 6.23 PROVISO PROVIDES THAT AN ASSESSEE SHALL BE ALLOWED MARGIN OF 5% FROM THE ARITHMETICAL MEAN OF MORE THAN ONE PRICE COMPUTED BY THE MOST APPROPRIATED METHOD. IT CAN BE SEEN THAT IN THE CASE OF APPELLANT TWO INDEPENDENT QUOTATIONS FOR TAKING THE DREDGER ON HIRE HAVE BEEN FILED. IN THE ABSENCE OF EVIDENCE THAT THE QUOTATIONS ARE NOT INDEPENDENT, THERE VERACITY HAS TO BE ACCEPTED. IN VIEW OF THIS, PROVISO TO SECTION 92C(2) WOULD BE APPLICABLE. AS EXPLAINED ABOVE, THE DIFFERENCE BETWEEN THE QUOTED RATES OF THE DI AND GLDD WITH THE ACTUAL RATES AT WHICH PAYMENTS HAVE BEEN MADE IS INDIVIDUALLY LESS THAN 5%. ACCORDINGLY, NO ADJUSTMENT IS REQUIRED TO BE MADE. IN VIEW OF THIS, ADDITION OF ` .80,51,038/- MADE IN RESPECT OF DREDGER SAGA IS DELETED. 6.24 CONSEQUENTLY THE TOTAL ADDITION OF ` .3,24,32,184 MADE BY THE TPO IS DELETED. APPEAL ON GROUND OF APPEAL NOS. 6, 7 & 8 IS ALLOWED. 10.4 THERE IS NO CHANGE IN THE FACTS OF THIS CASE. I FULLY AGREE WITH THE DECISION OF THE CIT (A)-XXXI, MUMBAI . FURTHER, THE CIT (A)-XXXI HAS PREPARED THE CHART OF DIFFERENCE IN PERCENTAGE AND IT IS AVAILABLE IN PAR A 6.12 OF THE ORDER AND IT IS EXTRACTED BELOW: ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 28 OF 37 PARTICULAR ACTUAL PAYMENT TO WLPZ PER WEEK VARIATION WITH DI RATE PERCENTAGE DIFFERENCE VARIATION GLDD RATE PERCENTAGE DIFFERENCE VESSEL:SAGA MOB/DEMOB: YEARR 2000 170,884 3.297 1.93 3.570 2.09 MOB/DEMOB: YEAR 2001 179,798 3.984 2.21 3.399 1.89 OPERATIONS: YEAR 2000 191,709 3.511 1.83 3.366 1.75 OPERATIONS: YEAR 2001 201,610 2.668 1.32 2.869 1.42 VESSEL:HECTOR MOB/DEMOB: YEAR 2001 173,870 3.036 1.75 4.086 2.35 MOB/DEMOB: YEAR 2002 182,564 3.116 1.71 3.905 2.14 OPERATIONS: YEAR 2001 254,700 5.329 2.09 5.969 2.34 OPERATIONS: YEAR 2002 267,435 4.264 1.59 3.637 1.36 10.5 FROM THIS, IT CAN BE NOTICED THAT THE PERCENTA GE OF DIFFERENCE IS LESS IN CALENDAR YEAR 2002 COMPARED T O CALENDAR YEAR 2001. FURTHER, IT IS ALSO NOTICED THA T WITH RESPECT TO VESSEL HECTOR THE AGREEMENT WAS ENTERE D WHEN THE WLPZ WAS NOT AN ASSOCIATED ENTERPRISE. THI S FACT ALSO HELPS THE APPELLANT TO ARGUE THAT THE TRA NSACTION WAS ENTERED AT ARMS LENGTH PRICE. 10.6 IN VIEW OF ALL THE ABOVE DISCUSSIONS, I AM OF THE VIEW THAT THERE IS NO ADJUSTMENT REQUIRED TO BE MADE WIT H REGARD TO THE HIRE CHARGES PAID FOR THE VESSEL HEC TOR. AO IS DIRECTED TO DELETE THE ADDITION OF ` .1,72,02,723/-. 35. WE HAVE HEARD THE LEARNED DR AND THE LEARNED CO UNSEL WHOSE ARGUMENTS ARE SIMILAR TO THE CONTENTIONS RAISED IN ABOVE APPEAL IN ITA NO.6531/MUM/2006. SINCE THE ISSUES ARE SIMILAR AND FACTS BEING SAME, FOR THE REASONS STATED ABOVE IN PARA 21 TO 28, WE AFFIRM THE ORDER OF THE CIT (A) AND REJECT THE GROUND OF R EVENUE. 36. GROUND NO.2: THIS GROUND ARISES ON THE FOLLOW ING FACTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED AGAINST THE BANK GUARANTEE, AN AMOUNT OF ` .4,14,62,866 TOWARDS THE RELEASE OF ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 29 OF 37 RETENTION MONEY. AS PER THE CONTRACT ENTERED BY THE ASSESSEE WITH GOVT. OF INDIA, RETENTION MONEY OF 5% HAD BEEN WITH HELD. THE SAID AMOUNT WAS NOT OFFERED TO TAX DURING THE YEAR AND W AS OFFERED TO TAX ONLY UPON COMPLETION OF THE PROJECT. THE AGREEM ENT ALSO PROVIDED THAT WHENEVER RETENTION MONEY REACHES 2% O F THE CONTRACT PRICE, CONTRACTOR CAN ASK FOR RELEASE OF 1% OF THE CONTRACT PRICE BY FURNISHING BANK GUARANTEE. ACCORDINGLY ASSESSEE REC EIVED THE RETENTION MONEY BY FURNISHING THE BANK GUARANTEE. 37. AO HAS HELD THAT THE RELEASE OF RETENTION MONEY AGAINST THE BANK GUARANTEE HAS ACCRUED DURING THE YEAR AND THER EFORE IS TAXABLE IN THE YEAR OF RELEASE SINCE ASSESSEE HAS R EDUCED THE AMOUNTS SO RELEASED FROM THE BALANCE OF RETENTION M ONEY IN ITS BOOKS OF ACCOUNTS. 38. THE LEARNED CIT (A) ON CONSIDERING THE FACTS AN D LAW ON THE ISSUE DELETED THE SAME ON THE FOLLOWING REASONS: 12. I HAVE GONE THROUGH THE FACTS OF THE CASE. THE RE IS NO DISPUTE OVER THE FACT THAT THE MONIES RETAINED B Y THE CONTRACTEE DOES NOT ACCRUE TO THE CONTRACTOR TILL T HE CONTRACT WORK IS COMPLETED TO THE SATISFACTION OF T HE CONTRACTEE. THIS IS THE VIEW TAKEN BY THE HON'BLE M UMBAI HIGH COURT IN THE CASE OF CIT VS. ASSOCIATED CABLES PVT. LTD, 286 ITR 596 (BOM.). THE HON'BLE MUMBAI HIGH CO URT HAS OBSERVED AS FOLLOWS: THE PAYMENT OF RETENTION MONEY IN THE CASE OF CONTRACT IS CONTINGENT ON SATISFACTORY COMPLETION O F CONTRACT WORK. THE RIGHT TO RECEIVE THE RETENTION MONEY ACCRUES ONLY AFTER THE OBLIGATION UNDER THE CONTRACT ARE FULFILLED AND, THEREFORE, IT WOULD NOT AMOUNT TO INCOME OF ASSESSEE IN THE YEAR IN WHICH THE AMOUNT IS RETAINED. 12.1 AO HAS ALSO ACCEPTED THIS VIEW AND HE HAS NOT TREATED THE RETENTION MONEY AS INCOME. 12.2 HOWEVER, AO IS OF THE VIEW THAT WHEN THE APPEL LANT WAS ALLOWED TO GET CERTAIN AMOUNT OF RETENTION MONE Y (AFTER FURNISHING BANK GUARANTEE), THAT AMOUNT HAS ACCRUED TO THE APPELLANT AND HENCE IT SHOULD BE TAX ED IN THE YEAR OF RECEIPT. ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 30 OF 37 12.3 I COULD NOT AGREE WITH AO. IT IS ADMITTED BY A O THAT THE RETENTION MONEY ACCRUES TO THE APPELLANT AS AND WHEN THE CONTRACT IS COMPLETED TO THE SATISFACTION OF THE CONTRACTEE. UNTIL THEN, THE INCOME NEVER ACCRUES TO THE APPELLANT. THE HON'BLE MUMBAI HIGH COURT HAS CATEGORICALLY HELD SO (286 ITR 596) (BOM.). THE MON EY RECEIVED BY THE APPELLANT ON FURNISHING BANK GUARAN TEE IS NOT THE INCOME AT THAT POINT OF TIME. AS POINTED OUT BY THE APPELLANT, IT IS A FACILITY GIVEN TO THE APPELL ANT (TO THE CONTRACTOR) UNDER THE AGREEMENT TO HAVE CASH LIQUID ITY TO CARRY OUT THE WORK. THE ABSOLUTE RIGHT TO GET THE R ETENTION MONEY ARISES ONLY AFTER SATISFACTION OF THE CONDITI ONS LISTED OUT IN CLAUSE 60.6 OF THE AGREEMENT AND IT I S EXTRACTED BELOW: SUB CLAUSE 60.6: PAYMENT OF RETENTION MONEY: UPON THE ISSUE OF TAKING OVER CERTIFICATE WITH RESPECT TO THE BREAKWATER CONSTRUCTION, 2 PER CENT OF THE RETENTION MONEY SHALL BE CERTIFIED BY THE ENGINEER FOR PAYMENT TO THE CONTRACTOR (OR RETURN OF THE BANK GUARANTEE, AS THE CASE MAY BE). UPON THE ISSUE OF THE TAKING OVER CERTIFICATE WITH RESPE CT TO THE DREDGING WORKS IN THE APPROACH CHANNEL AND HARBOUR BASIN AND THE RECLAMATION WORKS, A FURTHER 2 PER CENT OF THE RETENTION MONEY SHALL BE CERTIFIED BY THE ENGINEER FOR PAYMENT TO THE CONTRACTOR FOR RETURN OF THE BANK GUARANTEE, AS MAY BE THE CASE). UPON THE EXPIRATION OF THE DEFECTS LIABILITY PERIOD FOR THE RECLAMATION WORKS, THE REMAINING PART OF THE RETENTION MONEY SHALL BE CERTIFIED BY THE ENGINEER FOR PAYMENT TO THE CONTRACTOR FOR RETURN O F THE BANK GUARANTEE, AS THE CASE MAY BE).. 12.4 TILL THE ISSUE OF TAKING-OVER CERTIFICATE WITH RESPECT TO THE DREDGING WORKS IN THE APPROACH CHANNEL AND HARBOUR BASIN AND THE RECLAMATION WORKS, 2% OF THE RETENTION MONEY NEVER ACCRUES TO THE APPELLANT. THE BANK GUARANTEE FURNISHED ALSO LIVES UPTO THE DATE O F ISSUE OF CERTIFICATE. THE SWORD OF RECOVERING THE AMOUNT ALWAYS HANGS ON TILL THE ISSUE OF ENGINEERS CERTIF ICATE. HENCE THE APPELLANT HAS NOT GOT ANY ABSOLUTE RIGHT OVER THE AMOUNT PAID AND THE AMOUNT PAID ONLY PARTAKES T HE CHARACTER LIKE AN INTEREST FREE ADVANCE MONEY PAI D ON THE BASIS OF A SECURITY (BANK GUARANTEE) PROVIDED. 12.5 IN VIEW OF THESE DISCUSSIONS, I HOLD THAT ` .4,14,62,866/- CANNOT BE TAXED AS INCOME IN THIS ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 31 OF 37 ASSESSMENT YEAR AND I DIRECT AO TO DELETE THE ADDIT ION. HOWEVER, BEFORE DELETING THE ADDITION, AO SHOULD VE RIFY WHETHER THIS AMOUNT CONSISTS OF ANY AMOUNT RELEASED ON ISSUE OF TAKING OVER CERTIFICATE (WITHOUT ANY BANK GUARANTEE), IF IT IS SO SUCH AMOUNT IS TAXABLE. 39. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THERE IS NO DISPUTE OVER THE FACT THAT ASSESSEE IS CONSISTENTLY FOLLOWI NG THE SAME METHOD AND THE RETENTION MONEY RECEIVED IS AGAINST A BANK GUARANTEE, BUT THE RETENTION MONEY AS SUCH WAS NOT RELEASED AS THE PROJECT WAS NOT COMPLETE. ON THESE FACTS, WE AGREE WITH THE LEARNED CIT (A). THIS ISSUE WAS ALSO CONSIDERED IN ASSESSEE S OWN CASE BY ITAT IN THE YEARS I.E. ASSESSMENT YEAR 2002-03, 200 4-05 AND 2005- 06. THE ITAT ELABORATELY DISCUSSED THE FACTS AND HE LD IN FAVOUR OF ASSESSEE IN ASSESSMENT YEAR 2004-05 WHICH IS AS UND ER IN PARA 8 TO 10 IN ITA NO.999/MUM/2008 DATED 30.12.2011. 8. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES. WE HAVE GONE THROUGH THE CASES (SUPRA) CITED BY LEARNED REPRESENTATIVES OF BOTH PARTIES.. WE OBSERVE THAT T HE SIMILAR ISSUE HAS BEEN CONSIDERED BY ITAT (TM) IN T HE CASE OF ASSOCIATED CABLES PVT. LTD (SUPRA) AS UNDER : 90 PERCENT OF VALUE OF ASSESSEES GOODS WERE BILLED ON DISPATCH, AND 10 PERCENT WAS PAYABLE UPON COMPLETION OF WARRANTY PERIOD. THIS AMOUNT RETAINED WAS CONDITIONAL ON FULFILLMENT OF CERTAIN REPRESENTATIONS MADE BY ASSESSEE TO CUSTOMERS. AS PER THE AGREEMENT ENTERED INTO WITH THE CUSTOMERS, AMOUNT RETAINED WAS RELEASED AGAINST FURNISHING BANK GUARANTEE BY A SCHEDULED BANK. THE THIRD MEMBER HELD OF THE TRIBUNAL HAD HELD AS FOLLOWS: AS THE PERFORMANCE GUARANTEE REMAINS AND IS ENFORCEABLE WITHOUT NOTICE TO THE ASSESSEE, THE INCOME FROM THE RETENTION MONEY CANNOT BE RECOGNIZED. CONSEQUENTLY, I HAVE TO AGREE WITH THE LEARNED ACCOUNTANT MEMBER THAT THE RETENTION ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 32 OF 37 MONEY OF 10% HAS TO BE EXCLUDED IN COMPUTING THE TOTAL INCOME UNTIL THE PERIOD OF GUARANTEE IS OVER. WE OBSERVE THAT THE HONBLE JURISDICTIONAL HIGH COU RT IN THE SUBSEQUENT ASSESSMENT YEAR OF SAME ASSESSEE CONSIDERED THE ABOVE DECISION OF ITAT AND AFFIRMED THE SAID DECISION. IT WAS HELD THAT RETENTION MONEY WIT HHELD BY THE CONTRACTEE PENDING COMPLETION OF CONTRACT WO RK DOES NOT ACCRUE TO THE ASSESSEE/CONTRACTOR IN THE Y EAR IN WHICH THE AMOUNT IS RETAINED. WE ALSO OBSERVE THAT SIMILAR ISSUE WAS ALSO CONSIDERED BY ITAT IN THE CA SE OF SPIRAX MARSHALL LTD (SUPRA) WHEREIN IT WAS HELD THA T RECEIPT OF RETENTION MONEY AGAINST FURNISHING BANK GUARANTEE CANNOT PARTAKE CHARACTER OF INCOME SINCE IT CANNOT BE APPORTIONED UNTIL GUARANTEE PERIOD WAS OV ER. THE RETENTION MONEY MAY BE RECEIVED BY THE ASSESSEE ; IT CANNOT BE APPORTIONED UNTIL EXPIRY OF WARRANTY PERI OD. WE OBSERVE THAT THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. YATINDRA AND CO. (SUPRA) HELD THAT AN AMOUNT RECEIVED BY ASSESSEE AGAINST BANK GUARANTEE WAS NOT ACCRUED TO THE ASSESSEE DURING THE YEAR AS NO ABSOLUTE RIGHT TO RECEIVE THE AMOUNT AT THAT STAGE VESTED. 9. FURTHER WE OBSERVED THAT THE ASSESSEE RECEIVED A PART OF RETENTION MONEY AGAINST BANK GUARANTEE IN THE PRECEDING ASSESSMENT YEARS, THE DETAILS OF WHICH AR E GIVEN BY ASSESSING OFFICER AT PAGE 2 AND ALSO MENTI ONED HEREIN ABOVE IN PARA 3 AT PAGE 3 OF THIS ORDER. DUR ING THE COURSE OF HEARING THE LEARNED AUTHORIZED REPRESENTA TIVE SUBMITTED THAT THE ASSESSEE IS FOLLOWING CONSISTENT LY TO OFFER FOR TAXATION THE PART RELEASED OF RETENTION M ONEY AGAINST BANK GUARANTEE IN THE ASSESSMENT YEAR IN WH ICH RIGHT TO RECEIVE THE SAID RELEASE OF RETENTION MONE Y ACCRUED TO THE ASSESSEE UNCONDITIONALLY. THE LEARNE D DEPARTMENTAL REPRESENTATIVE ALSO DID NOT DISPUTE TH E ABOVE CONTENTION OF LEARNED AUTHORIZED REPRESENTATI VE AT THE TIME OF HEARING. 10. IN VIEW OF ABOVE FACTS AND DECISIONS, AND PARTICULARLY THAT SIMILAR ISSUE HAS BEEN CONSIDERED BY THE HONBLE MUMBAI HIGH COURT IN THE CASE OF ASSOCI ATED CABLES PVT. LTD. (SUPRA) WHICH HAS BEEN FOLLOWED BY THE LEARNED CIT (A), WE DO NOT FIND ANY REASON TO INTER FERE WITH THE ORDER OF LD.CIT (A). HENCE, WE UPHOLD HIS ORDER AND REJECT THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT. ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 33 OF 37 40. LEARNED DR TRIED TO DISTINGUISH THE ABOVE AND R ELIED ON THE DECISION OF EMERSON NETWORK POWER INDIA (P.) LTD. V S. ASSISTANT COMMISSIONER OF INCOME-TAX, 27 SOT 593 (MUM) AND TH E PRINCIPLES LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF R OTORK CONTROLS INDIA (P.) LTD. VS. COMMISSIONER OF INCOME-TAX 180 TAXMAN 422(SC). HE ALSO REFERRED TO THE ASSOCIATED CABLES P. LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX IN 48 ITD 141 IN DEFENDING THE ACTION OF AO. IN OUR CONSIDERED OPINION, THE CASE LAW RELIED ON BY LEARNED DR DOES NOT APPLY TO THE FACTS OF THIS CASE . IN THE CASE OF EMERSON NETWORK POWER INDIA (P) LTD (SUPRA), THE FA CTS ARE THAT THE WHOLE INCOME HAS ACCRUED TO ASSESSEE ON THE DELIVER Y OF THE PRODUCTS TO THE CUSTOMERS AS FAR AS SALE VALUE OF P RODUCTS WAS CONCERNED AND AS REGARDS INSTALLATION AND COMMISSIO NING ACTIVITY, INCOME THEREON HAD ACCRUED AT THE MOMENT WHEN SUCH SERVICES WERE RENDERED BY ASSESSEE. HOWEVER, IN THIS CASE TH E PROJECT WAS ONGOING AND SO THE ACCRUAL OF INCOME TO THE EXTENT OF RETENTION MONEY WAS CONCERNED HAS NOT HAPPENED. THE PRINCIPLE IN THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROL S INDIA (P) LTD (SUPRA) WAS WITH REFERENCE TO WARRANTY LIABILITY PROVIDED AS EXPENSE, NOT INCOME. WITH REFERENCE TO THE THIRD ME MBER CASE OF ITAT IN ASSOCIATED CABLES (P) LTD WAS CONCERNED, TH E ORDER WAS APPROVED BY THE HON'BLE HIGH COURT IN286 ITR 596 (B OM.) WHICH THE CIT (A) HAS FOLLOWED. THEREFORE, THE ARGUMENT OF DI SSENTING MEMBER DOES NOT COME INTO CONSIDERATION. IN VIEW OF THE AB OVE, THE CONTENTIONS RAISED BY THE LEARNED DR WERE REJECTED. RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION IN OTHER YE ARS, WE AFFIRM THE ORDER OF THE CIT (A) AND REJECT THE GROUND NO.2 OF THE REVENUE. 41. GROUND NO.3 PERTAINS TO THE ISSUE OF REPAIRS TO THE DREDGER. AO DISALLOWED THE REPAIR EXPENSE HOLDING THAT PROVISIO N OF EXPENSE IS NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. IT W AS THE CONTENTION ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 34 OF 37 THAT THE REPAIR WORK WAS COMPLETED DURING THE YEAR UNDER CONSIDERATION. PENDING THE RECEIPT OF INVOICE THESE EXPENSES WERE ACCOUNTED IN THE BOOKS OF ACCOUNT AS PROVISION. THE LIABILITY TO PAY THE EXPENSES HAD ALREADY ARISEN SINCE THE REPAIR WO RK WAS COMPLETED DURING THE YEAR UNDER CONSIDERATION AND T HE INVOICE WAS ALSO RECEIVED BY APRIL 30, 2003. COPIES OF THE INVO ICES WERE FILED BEFORE AO AND CIT(A). ACCORDINGLY THE ASSESSEE SUBM ITTED THAT THE EXPENDITURE AS AN ALLOWABLE DEDUCTION IN THE YEAR U NDER CONSIDERATION. 42. IN THIS REGARD THE ASSESSEE RELIED ON THE RATIO LAID DOWN IN THE FOLLOWING DECISIONS: (I) CALCUTTA CO. LTD V. CIT (1959) 37 ITR 1 (SC) (II) POONA ELECTRIC SUPPLY CO. V. CIT 57 ITR 521 (S C) (III) CIT VS S.K.G. SUGAR LTD, 96 ITR 194 (PAT) (IV) BHARAT EARTH MOVERS VS. CIT 245 ITR 428 (SC) (V) UDAIPUR MINERAL DEVELOPMENT SYNDICATE (P) LTD V S. DCIT AND ANR. 261 ITR 706 (RAJ.) (VI) KUNDAN SUGAR MILLS VS. CIT 106 ITR 704 (VII) METAL BOX CO. OF INDIA LTD VS. THEIR WORKMEN 73 ITR 53. (VIII) CIT VS. S.K.G. SUGAR LTD 96 ITR 194 (IX) CIT VS. LAKSHMI RATAN COTTON MILLS CO. 104 ITR 319 (X) CIT VS. DELHI CLOTH & GENERAL MILLS CO. LTD 127 ITR 11 (XI) CIT VS. NIRMAL KUMAR BOSE & BROS. 119 ITR 537 . 43. THE LEARNED CIT (A) CONSIDERED THE SUBMISSIONS AND DELETED THE ADDITION BY STATING AS UNDER: 14. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSIONS AND EXPLANATIONS PROVIDED BY THE APPELLANT. I HAVE ALSO GONE THROUGH THE INVOICE DAT ED 30.04.2003 AND IT IS EXTRACTED BELOW: ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 35 OF 37 BALLAST NEDAM FAR EAST PTE. LTD. DREDGING DIVISION. TAX INVOICE NO.M0359 GST NO.M2-00292 12-O BANKER-ABN AMRO BANK ACCOUNT NO.4032292 OFFICE ADDRESS: 20 HARBOUR DRIVE BALLAST RAM DREDGING B V PSA VISTA # 07-02 WALTERMANWEG 64 SINGAPORE 117612 3067 GG ROTTERDAM PO BOX 8574 3009 AN ROTTERDAM THE NETHERLANDS INVOICE NR: 31/03189 DATE: 30 APRIL,2003 DEAR SIR, WE HEREWITH CHARGE YOU FOR THE FOLLOWING: RECHARGEALE PROJECT/JVS (LEDGER NO.290800) DATE REFERENCE DESCRIPTION AMOUNT PROJECT SEABIRD-INDIA. 17-MAR 03 20320560 SEMCO GIANT-V CRIBBING 32,680.00 WORKS ON MAIN DECK 17-MAR-03 20320561 WORKS CARRIED OUT ONBOARD 49,38 5.00 SEMCO GIANT-V FROM 21/12 10/04 01-MAR-03 20350812 ORWELL BANKER SURVEY FEE 1093.00 01 MAR-03 2035937 SEABIRD HRS FOR EQUIPT & 1,467. 00 MANPOWER TO DISCH.HECTOR SPUD PARTS. TOTAL AMOUNT PAYABLE IN SGD $8 4,625.00 14.1 FROM THE ABOVE, IT IS CLEAR THAT THE WORKS WER E CARRIED OUT IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2003- 04 AND THE APPELLANT HAS CLAIMED THIS EXPENDITURE I N ASSESSMENT YEAR 2003-04 AFTER MAKING PROVISION FOR PAYMENT. AO HAS SIMPLY STATED THAT IT IS NOT ALLOWA BLE BECAUSE IT IS ONLY PROVISION. I AM FULLY CONVINCED IT IS AN ALLOWABLE EXPENDITURE BECAUSE THE EXPENDITURE WAS I NCURRED IN THIS ACCOUNTING YEAR AND AO IS DIRECTED TO DELET E THE ADDITION. 44. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FA CTS ON RECORD. WE SEE NO REASON TO DIFFER FROM THE FINDING S OF THE CIT (A). FIRST OF ALL THE EXPENDITURE HAS ACCRUED AND SO THE PAYMENT LATER CANNOT BE A REASON TO DISALLOW ON THE REASON THAT A SSESSEE PROVIDED AS A PROVISION. AS RIGHTLY POINTED OUT BY THE CIT ( A), THE GENUINENESS OF EXPENDITURE WAS NOT DOUBTED. IN THES E CIRCUMSTANCES, THERE IS NO MERIT IN REVENUE GROUND, HENCE, REJECTED. ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 36 OF 37 45. GROUND NO.4 PERTAINS TO THE ISSUE OF CONTRIBUTI ON OF ASSESSEE ` .3,15,000 TOWARDS CELEBRATION OF THE ANNUAL EVENT B Y THE NAVY. IT WAS SUBMITTED BY ASSESSEE THAT IT WAS EXECUTING THE CONTRACT FOR DREDGING AND LAND RECLAMATION FOR THE NAVAL BASE AT KARWAR. ON ACCOUNT OF BUSINESS EXIGENCIES, ASSESSEE HAD TO PAR TICIPATE IN CERTAIN ACTIVITIES ORGANIZED BY THE INDIAN NAVY. AO DID NOT AGREE. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE EXPENDI TURE WAS INCURRED ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND WA S INCURRED WHOLLY AND EXCLUSIVELY IN THE COURSE OF CARRYING ON ITS BUSINESS. IT WAS SUBMITTED THAT IT RESULTED IN BENEFITS TO ASSE SSEES BUSINESS BY MEANS OF DEVELOPING MORE CORDIAL RELATIONS WITH THE NAVAL AUTHORITIES. THUS, THE EXPENDITURE ALTHOUGH INCURRE D VOLUNTARILY WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSES SEES BUSINESS AND THEREFORE, CLAIMED AS BUSINESS EXPENDITURE. 46. THE LEARNED CIT (A) CONSIDERED THE SUBMISSIONS AND DELETED THE ADDITION BY STATING AS UNDER: 18. I HAVE GONE THROUGH THE ISSUE. THE APPELLANT I S CARRYING OUT A CONTRACT WITH REGARD TO A NAVAL PROJ ECT. THE APPELLANT HAS DONATED AN AMOUNT OF ` .3,15,000/- TOWARDS THE CELEBRATION OF NAVY BALL WHICH IS AN ANNUAL EVENT CELEBRATED BY THE NAVAL STAFF. THE APPELLANT HAS CLAIMED IT AS A BUSINESS EXPENDITURE. AO HAS NOT ACCEPTED THIS CONTENTION STATING THAT IT IS NOT ALLOWABLE UNDER SECTION 37 OF THE I.T. ACT, 1961. A O HAS ALSO STATED THAT THE APPELLANT COULD NOT PROVE THAT THE EXPENDITURE IS MET OUT FOR BUSINESS PURPOSES. 18.1 WHEN A PERSON IS CARRYING OUT A CONTRACT WORK, IT IS NECESSARY TO HAVE A GOODWILL OF ALL THOSE PRESENT I N THE LOCALITY. IT NEED NOT BE EMPHASIZED THAT WHEN A CON TRACT IS DONE FOR NAVY, IT IS NECESSARY TO HAVE THE GOOD WILL OF THE NAVY STAFF. THIS KIND OF CONTRIBUTION TO A PUBL IC CAUSE WILL CREATE A LOT OF GOODWILL AND IT WILL CER TAINLY HELP THE PERSON CARRYING OUT THE CONTRACT. IT IS SE TTLED LAW THAT ANY EXPENDITURE HAS TO BE LOOKED FROM THE BUSINESSMANS POINT OF VIEW WHILE ANALYZING ANY DEDUCTION CLAIMED BY THE APPELLANT. THE GENUINITY O F THE EXPENDITURE IS NOT DOUBTED AND THE EXPENDITURE IS N OT ITA NOS.6531, 1591 & CO.NO.81 BALLAST NEDAM DREDGIN G MUMBAI. PAGE 37 OF 37 EXPRESSLY PROHIBITED BY THE PROVISIONS OF THE LAW. IN VIEW OF THIS, I AM FULLY SATISFIED THAT THE EXPENDITURE SHOULD BE ALLOWED AS DEDUCTION UNDER SECTION 37 OF THE I.T . ACT 1961. AO IS DIRECTED TO DELETE THE ADDITION. 47. HERE ALSO, WE SEE NO REASON TO DIFFER FROM THE ORDER OF THE CIT(A). THE AMOUNT WAS CONTRIBUTED TO THE FUNCTION OF NAVAL STAFF WHICH IS NECESSARY FOR THE PURPOSE OF A BUSINESS, B EING A CONTRACTOR DOING THE WORK IN THE NAVAL FACILITY. THE EXPENDITU RE IS ALLOWABLE UNDER SECTION 37(1). THE REVENUE GROUND IS REJECTED . 48. THE APPEAL OF REVENUE IS DISMISSED. 49. IN THE RESULT BOTH THE APPEALS FILED BY THE REV ENUE AND THE CROSS OBJECTION FILED BY ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2013. SD/- SD/- (VIVEK VARMA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 31 ST JANUARY, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI