Lummus Technology Heat Transfer BV, Gurgaon V. Addl. DIT, New Delhi

ITA 1047/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3016 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 17-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: REEMA MALIK
• Keywords: Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Additional evidence; Permanent establishment; Question of law
• Section: 143(3); 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SMT. BEENA A. PILLAI , JM ITA NO. 1047 /DEL/2014 : ASSTT. YEAR : 2009 - 10 LUMMUS TECHNOLOGY HEAT TRANSFER BV, C/ O INDIA BRANCH OFFICER, 2 ND FLOOR, INFINITY TOWER B, DLF CYBER CITY, PHASE - II, SECTOR - 25A, GURGAON - 122002 VS ADDL. CIT, RANGE - 3, INTERNATIONAL TAXATION, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA BCA9045K ASSESSEE BY : SH. VI SHAL KALRA, ADV. & MS. REEMA MALIK, CA REVENUE BY : SH. SANJAY I. BARA , CIT DR DATE OF HEARING : 20.03 .201 8 DATE OF PRONOUNCE MENT : 23 .03 .201 8 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 18.12.2013 PASSED BY THE AO U/S 144C(1) R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE AO HAS ERRED IN COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT IN THE CASE OF THE APPELLANT AT AN INCOME OF INR 28,387,525, AS AGAINST THE NIL INCOME RETURNED BY THE APPELLANT UNDER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT S AMOUNTING TO INR 14,653,072 AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT ON WHICH TAXES WERE PAID. 2. TRANSFER PRICING ADJUSTMENT OF INR 31,869,942 IN RESPECT OF PROVISION OF SERVICES / SUPPLIES TO ASSOCIATED ENTERPRISE ('AE') ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 2 2.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TRANSFER PRICING OFFICER ('TPO') / DISPUTE RESOLUTION PANEL ('DRP') HAVE ERRED IN MAKING AN ADJUSTMENT OF INR 31,869,942 IN RESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF DESIGN AND ENGINEER ING SERVICES AND SUPPLY OF EQUIPMENT, ALLEGING THE SAME TO NOT BE AT ARM'S LENGTH IN TERMS OF THE PROVISIONS OF SECTIONS 92C(1) AND SECTION 92C(2) OF THE ACT READ WITH RULE 10D OF THE INCOME - TAX RULES, 1962 ('THE RULES'). 2.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TPO / DRP HAVE ERRED IN REJECTING THE SEGMENTAL PROFIT AND LOSS ACCOUNT, IN RELATION TO AE AND NON - AE SEGMENT, ON CONJECTURES AND SURMISES ALLEGING THAT SUCH ACCOUNTS ARE NOT RELIABLE AND AUDITED. 2.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TPO / DRP HAVE ERRED IN ARBITRARILY REJECTING THE INTERNAL TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD USED BY THE APPELLANT TO BENCHMARK THE INTERNATIONAL TRA NSACTION AND FURTHER ERRED IN APPLYING EXTERNAL TNMM USING EXTERNAL COMPARABLE COMPANIES. 2.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TPO / DRP HAVE ERRED IN ARBITRARILY SELECTING COMPARABLE COMPANIES BASED ON INCORRECT APPREC IATION OF FUNCTIONAL, ASSET AND RISK ('FAR') PROFILE. 2.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO/DRP HAVE ERRED IN ARBITRARILY REJECTING CERTAIN COMPARABLE COMPANIES BASED ON INCORRECT APPRECIATION OF FAR PROFILE. 2.6 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TPO / DRP HAVE ERRED IN IGNORING THE PROVISIONS OF RULE 10B(4) OF THE RULES AND JUDICIAL PRONOUNCEMENTS, WHICH ADVOCATE USE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERM INATION OF THE ARM'S LENGTH PRICE. ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 3 2.7 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TPO / DRP HAVE ERRED IN NOT GRANTING THE BENEFIT OF ECONOMIC / IDLE CAPACITY/ RISK ADJUSTMENTS. 2.8 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / TPO / DRP HAVE ERRED IN NOT PROVIDING THE APPELLANT THE BENEFIT OF THE 5 PERCENT RANGE AS PROVIDED BY THE PROVISO OF SECTION 92C(2) OF THE ACT. 2.9 WITHOUT PREJUDICE TO THE ABOVE, THE AO / TPO / DRP HAVE ERRED IN MAKING TRANSFER PRICING ADJUSTMENT ON THE ENTIRE COST BASE OF THE APPELLANT WITHOUT EXCLUDING THE COST INCURRED IN RELATION TO THE NON - AE AND THE IDLE CAPACITY SEGMENT. 3. ADDITION ON ACCOUNT OF DIRECT SUPPLIES / SERVICES BY THE HEAD OFFICE AMOUNTING TO INR 2,712,400 . 3.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN MAKING AN ADJUSTMENT OF INR 2,712,400 TO THE INCOME OF THE APPELLANT, IN RESPECT OF THE DIRECT SUPPLIES / SERVICES BY THE HEAD OFFICE, ON THE PREMISE THAT SUCH DIRECT SUPPLIES / SERVICES WERE MADE THROUGH / WITH THE INVOLVEMENT OF THE PERMANENT ESTABLISHMENT ('PE') OF THE APPELLANT, BEING THE BRANCH OFFICE IN INDIA. 3.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN ALLEGING ARBITRAR ILY THAT THE PE OF THE APPELLANT WAS INVOLVED IN NEGOTIATING AND CONCLUDING CONTRACTS ON BEHALF OF THE HEAD OFFICE WITH THE INDIAN CUSTOMERS IN RELATION TO THE DIRECT SUPPLIES / SERVICES MADE BY THE HEAD OFFICE. 3.3 THAT ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN APPLYING AN AD - HOC AND ARBITRARY RATE OF 25 PERCENT TO DETERMINE GROSS PROFIT FROM THE DIRECT SALES / SERVICES IN INDIA BY THE HEAD OFFICE AND FURTHER ERRED IN ESTIMATING, ON AN AD - HOC BASIS, 50 PERCEN T THEREOF, AS ATTRIBUTABLE TO THE PE OF THE APPELLANT, ON CONJECTURES AND SURMISES. ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 4 3.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN ATTRIBUTING FURTHER PROFITS TO THE PE OF THE APPELLANT WITHOUT APPRECIATING THAT THE SUBJECT TRANSACTIONS HAVE BEEN SCRUTINIZED BY THE TPO AND NO FURTHER PROFITS COULD HAVE BEEN ATTRIBUTED. 3.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED BY MISINTERPRETING THE FACTS OF THE CASE AND MAKING ASSUMP TIONS IN ATTRIBUTING FURTHER PROFITS TO THE PE OF THE APPELLANT, BEING THE BRANCH OFFICE IN INDIA. 4. AD - HOC DISALLOWANCE OF BUSINESS EXPENSES AMOUNTING TO INR 2,605,000 4.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN MAKING AN ARBITRARY AND AD - HOC DISALLOWANCE OF BUSINESS EXPENDITURE AMOUNTING TO INR 2,605,000, INCURRED ON REPAIR AND MAINTENANCE, COMMUNICATION AND MISCELLANEOUS EXPENSES. 4.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE DRP HAS ERRED IN NOT ADMITTING THE DETAILS OF THE EXPENDITURE, PLACED BEFORE THE DRP AS ADDITIONAL EVIDENCE, BY THE APPELLANT DURING THE COURSE OF HEARING, WITHOUT APPRECIATING THE FACT THAT THE PROCEEDINGS BEFORE THE DRP ARE BUT A CONTINUATION OF THE ASSESSMENT PROCEEDINGS. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN CHARGING INTEREST UNDER SECTIONS 234B OF THE ACT. EACH OF THE ABOVE GROUNDS IS INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL PREFERRED BY THE APPELLANT. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING, OF THE APPEAL. ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 5 3 . GROUND NO. 1 IS GENERAL IN NATURE, SO DO NOT R EQUIRE ANY COMMENTS ON OUR PART. 4 . GR OUND NOS. 2 TO 2.3 & 2.9 RELATE TO THE TRANSFER PRICING ADJUSTMENT OF RS.3,18,69,942/ - IN RESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF DESIGN & ENGINEERING SERVICES AND SUPPLY OF EQUIPMENT. 5 . FAC TS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2009 DECLARING NIL INCOME. SINCE, THE ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS WITH IT S ASSOCIATED ENTERPRISES (AES), A REFERENCE WAS MADE BY THE AO TO THE TPO, NEW DELHI U/S 92CA(1) OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) . THEREAFTER, THE TPO VIDE ORDER DATED 24.12.2012 PROPOSED THE ADDITION OF RS.3,18,69,942/ - BY PASSING THE ORDER DATED 24.12.2012 U/S 92CA(3) OF THE ACT. SUBSEQUENTLY, THE AO PASS ED THE DRAFT ASSESSMENT ORDER DATED 28.03.2013 AND MADE THE ADDITION OF RS.3,18,69,942/ - ON ACCOUNT OF TRANSACTIONS ENTERED INTO PE/BO WITH ITS HO/AE. THEREAFTER, THE ASSESSEE FILED THE OBJECTION S BEFORE THE LD. DRP. H OWEVER, THE LD. DRP DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND WAS OF THE VIEW THAT THE REVENUE FR OM NON - AE SEGMENT WAS MINISCULE, T HEREFORE, USING THE INTERNAL TNMM WOULD NOT PROVIDE THE OBJECTIVE COMPARABILITY ANALYSIS FOR THE PURPOSE OF BENCHMARKING INTERNATIONAL TRANSACTION S . ACCORDINGLY, THE LD. DRP WAS OF THE VIEW THAT THE TPO S ACTION OF USING THE EXTERNAL TNMM WAS CORRECT. 6 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 6 21.02.2014 IN ITA NO. 6227/DEL/2012 FOR THE ASSESSMENT YEAR 2008 - 09 IN ASSESSEE S OWN CASE. 7 . IN HIS RIVAL SUBMISSIONS, THE LD. CIT DR STRONGLY SUPPORTED THE ORDER S OF THE TPO/AO AND REITERATED THE OBSERVATIONS MADE IN THEIR RESPECTIVE ORDERS. 8 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF ADJUDICATION IN THE PRECEDING ASSESSMENT YEAR 2 008 - 09 IN ITA NO. 6227/DEL/2012 WHEREIN VIDE ORDER DATED 21.02.2014 , THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 4 & 5 WHICH READ AS UNDER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MAT ERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. RULE 10B(1)(E) OF THE INCOME TAX RULES, WHICH DEALS WITH THE TRANSACTIONAL NET MARGIN METHOD, PROVIDES REQUIRES THAT THE NET PROFIT MARGIN R EALIZED BY THE ENTERPRISE (I.E. THE ASSESSEE) FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD T O ANY OTHER RELEVANT BASE IS COMPARED WITH THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE ( I.E. THE ASSESSEE) OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE S AME BASE OF COURSE, SUBJECT TO COMPARABILITY ADJUSTMENTS WHICH COULD AFFECT THE AMOUNT OF NET PROFIT MARGIN IN UNCONTROLLED CONDITIONS. IT IS NOT AT ALL NECESSARY, AS THE AUTHORITIES BELOW SEEM TO SUGGEST, THAT SUCH NET PROFIT COMPUTATIONS, IN THE CASE OF INTERNAL COMPARABLES (I.E. ASSESSEE S TRANSACTIONS WITH INDEPENDENT ENTERPRISE), ARE BASED ON THE AUDITED BOOKS OF ACCOUN TS OR THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE. IN OUR CONSIDERED VIEW, ALL THAT IS NECESSARY FOR THE PURPOSE OF C OMPUTING ARM S LENGTH PRICE, UNDER ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 7 TNMM ON THE BASIS OF INTERNAL COMPARABLES, IS COMPUTATION OF NET PROFIT MARGIN, SUBJECT TO COMPARABILITY ADJUSTMENTS AFFECTING NET PROFIT MARGIN OF UNCONTROLLED TRANSACTIONS, ON THE SAME PARAMETERS FOR THE TRANSACTIONS WI TH AES AS WELL AS NON AES, I.E. INDEPENDENT ENTERPRISES, AND AS LONG AS THE NET PROFITS EARNED FROM THE CONTROLLED TRANSACTIONS ARE THE SAME OR HIGHER THAN THE NET PROFITS EARNED ON UNCONTROLLED TRANSACTIONS, NO ALP ADJUSTMENTS ARE WARRANTED. IT IS NOT AT ALL NECESSARY THAT SUCH A COMPUTATION SHOULD BE BASED ON SEGMENTAL ACCOUNTS IN THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE AND SUBJECTED TO AUDIT. WE ARE, THEREFORE, OF THE VIEW THAT THE AUTHORITIES BELOW WERE IN ERROR IN REJECTING THE SEGME NTAL RESULTS ON THE GROUND THAT THE SEGMENTAL ACCOUNTS WERE NOT AUDITED AND THAT THESE SEGMENTAL ACCOUNTS WERE NOT MAINTAINED IN THE NORMAL COURSE OF BUSINESS. AS REGARDS VAGUE GENERALIZATIONS BY THE TPO TO THE EFFECT THAT THESE ACCOUNTS ARE MANIPULATED, T HAT ALLOCATION BASIS OF EXPENSES IS UNFAIR AND THAT THESE ACCOUNTS CONCEAL TRUE PROFITABILITY, WE FIND THAT THESE OBSERVATIONS ARE TOO SWEEPING AND GENERALIZED THE OBSERVATIONS TO HAVE ANY MERITS. IN ANY EVENT, LEARNED COUNSEL FOR THE ASSESSEE HAS PAINSTAK INGLY TAKEN US THROUGH THE SEGMENTAL ACCOUNTS, POINTED OUT THE BASIS OF ALLOCATION OF THE EXPENSES. WE HAVE NOTED THAT THE ALLOCATION OF EXPENSE IS ON THE MAN HOUR BASIS, WHICH IS QUITE FAIR AND REASONABLE, AND THAT EVERY PERSON HAS TO PUNCH IN HOURS ON A SPECIFIC PROJECT. WE HAVE ALSO NOTED THAT ALL THESE DETAILS AND EXPENSE ALLOCATION BASIS WERE ALSO BEFORE THE TPO AND EVEN THEN, NO SPECIFIC DEFECTS WERE POINTED OUT BY THE TPO. TAKING INTO ACCOUNT ALL THESE FACTORS, AS ALSO ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE TPO INDEED ERRED IN REJECTING THE SEGMENTAL ACCOUNTS AND T HUS DECLINING TO ACCEPT THE INT ERNAL COMPARABLE. WE ARE ALSO OF THE VIEW THAT THE SIZE OF THE UNCONTROLLED TRANSACTION OR TRANSACTIONS BEING SMALLER, BY ITSELF, DOES NO T MAKE THESE TRANSACTIONS INCOMPARABLE WITH THE TRANSACTIONS IN CONTROLLED CONDITIONS. SIZE OF THE COMPARABLE DOES MATTER IN ENTITY LEVEL COMPARISON BECAUSE SCALE OF OPERATIONS SUBSTANTIALLY VARY AND SO DOES THE UNDERLYING PROFITABILITY FACTOR, BUT IN A TR ANSACTION LEVEL COMPARISON WITHIN THE SAME ENTITY, MERE DIFFERENCE IN SIZE OF THE UNCONTROLLED TRANSACTIONS DOES NOT RENDER THE TRANSACTION INCOMPARABLE. IF THE SIZE OF UNCONTROLLED TRANSACTION IS TOO BIG, IT MAY CALL FOR AN ADJUSTMENT FOR VOLUME BUSINESS. IF THE SIZE OF THE UNCONTROLLED TRANSACTION IS TOO SMALL, IT ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 8 MAY PROVOKE AN INQUIRY BY THE TPO TO ENSURE THAT IT IS NOT A CONTRIVED TRANSACTION OUTSIDE THE NORMAL COURSE OF BUSINESS OR WITH REGARD TO OTHER SIGNIFICANT FACTORS SURROUNDING SMALLNESS OF SUCH TRANSACTION. HOWEVER, IN OUR CONSIDERED VIEW, IN NONE OF THESE CASES, A COMPARABLE CAN BE REJECTED ON THE BASIS OF ITS SIZE PER SE. IN THIS VIEW OF THE MATTER, THE AUTHORITIES BELOW WERE CLEARLY IN ERROR IN REJECTING THE INTERNAL COMPARABLE, I.E. PROFITAB ILITY OF ASSESSEE S TRANSACTIONS WITH NON AES, ON THE GROUND THAT THE VOLUME OF BUSINESS WITH NON AES WAS TOO SMALL VIS - - VIS BUSINESS WITH AES. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, THE ASSESSEE WAS QUITE JUSTIFIED IN ADOPTING INTERNAL TNMM AND COMPARING THE PROFIT EARNED ON ITS TRANSACTIONS WITH AES WITH PROFIT EARNED WITH NON - AES. ACCORDINGLY, THE ALP ADJUSTMENT OF RS 2,72,42,940 DESERVES TO BE DELETED. WE ORDER SO. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 9 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 21.02.2014 FOR THE ASSESSMENT YEAR 2008 - 09 IN ASSESSEE S OWN CASE IN ITA NO. 6227/DEL/2012, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 10 . AS REGARDS TO GROUND NOS. 2.4 TO 2.8 IS CONCERNED . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE GROUNDS ARE CO - RELATED WITH GROUND NOS. 2 TO 2.3 & 2.9 AND THAT IN CASE THOSE GROUNDS ARE DECIDED IN FAVOUR OF THE ASSESSEE THAN THE GROUND NOS. 2.4 TO 2.8 TO BE CONSIDERED AS ACADEMIC IN NATURE. SINC E, THE ISSUE RAISED IN GROUND NOS. 2 TO 2.3 & 2.9 IS DECIDED IN FAVOUR OF TH E ASSESSEE, THEREFORE, T HE GROUND NOS. 2.4 TO 2.8 ARE CONSIDERED AS ACADEMIC IN NATURE. 11 . VIDE GROUND NOS. 3 TO 3.5, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITION OF RS. 27,12,400/ - MADE BY THE AO ON ACCOUNT OF ADJUSTMENT IN RESPECT OF DIRECT SUPPLIES/SERVICES BY CONSIDERING THAT THE PE OF THE ASSESSEE WAS INVOLVED IN NEGOTIATING AND CONCLUDING CONTRACTS ON BEHALF OF THE HEAD OFFICE ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 9 (HO) WITH INDIAN CUSTOMERS AND THAT THE AO ERRED IN DETERMINING THE GROSS PROFIT @ 25% FROM THE DIRECT SALES/SERVICES AND ATTRIBUTING 50% THEREOF TO THE PE OF THE ASSESSEE. 12 . AS REGARDS TO THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS ALSO COVERED IN FAVOUR OF THE ASSESSEE VIDE AFORESAID ORDER DATED 21.02.2014 FOR THE ASSESSMENT YEAR 2008 - 09 IN ITA NO. 6227/DEL/2012 WHEREIN THE EARLIER ORDER DATED 31.10.2013 IN ITA NO. 884/DEL/2011 FOR THE ASSESSMENT YEAR 2006 - 07 HAS BEEN FOLLOWED. THE AFORESAID CONTENTION OF THE LD. COUNSE L FOR THE ASSESSEE WAS NOT CONTROVERTED BY THE LD. CIT DR. 13 . AFTER CONSERVING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL AVAILABLE ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED VIDE ORDER DATED 31.10.2013 IN ITA NO. 884/DEL /2011 FOR THE ASSESSMENT YEAR 2006 - 07 WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN AS UNDER: 4.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM THE ASSESSING OFFICER'S FINAL ORDER PASSED U/S 144C (13) THAT THE ENTIRE ISSUE HAS BEEN DISCUSSED IN A SOLITARY PARA NO. 6 OF AROUND 10 LINES AT PAGE 37 OF THE ORDER. IT HAS BEEN CONCLUDED THAT THE ASSESSEE MUST HAVE RECEIVED A SUM EQUAL TO ITS DECLARED RECEIPTS IN RESPECT OF DIRECT TRANSACTIONS BETWEEN THE HO AND ITS INDIAN CUSTOMERS AND THE FURTHER PRESUMPTION IS THAT IT IS IN NATURE OF FEES FOR TECHNICAL SERVICES. WE ARE UNABLE TO APPRECIATE THE LOGIC OF THE AO IN DRAWING INFERENCES, ONE AFTER ME OTHER AND THE CONCLUSIONS REACHED IN THIS REGARD. THERE IS NO MATERIAL WORTH THE NAME TO SUGGEST, EVEN REMOTELY, THAT THE ASSESSEE WAS RENDERING SERVICES TO ITS HEAD OFFICE OR THE INDIAN CLIENTS IN RESPECT OF DIRECT TRANSACTIONS BETWEEN THEM. THERE IS ABSOLUTELY NO BEDROCK FOR SUCH PRESUMPTION. THE LEARNED DR WAS REQUIRED TO INVITE OUR ATTENTION TOWARDS ANY MATERIAL INDICATING THE ASSESSEE'S INVOLVEMENT IN THE DIRECT TRANSACTIONS BETWEEN THE HEAD OFFICE AND INDIAN CUSTOMERS. IN THE NAME OF REPLY, HE TOOK US THROUGH CERTAIN PORTIONS OF THE DRAFT ASSESSMENT ORDER IN WHICH THERE IS A ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 10 REFERENCE TO CERTAIN INVOICES OF THE HO INDICATING THE ROLE OF THE ASSESSEE IN SUCH DIRECT TRANSACTIONS. ON A CAREFUL SCRUTINY OF THE DATES OF SUCH INVOICES, IT CAN BE SEEN THAT THEY RELATE TO THE FINANCIAL YEAR 2004 - 05 RELEVANT TO THE PRE CEDING ASSESSMENT YEAR 2005 - 06. A COPY OF THE ASSESSMENT ORDER FOR THE A.Y. 2005 - 06 HAS BEEN PLACID ON RECORD. IT CAN BE SEEN FROM SUCH ORDER DATED 17.12.2007, THAT NO ADDITION WAS MADE IN RESPECT OF SUCH PRESUMPTIONS OF THE ASSESSING OFFICER. IT IS FURTHE R RELEVANT TO NOTE THAT THE ASSESSEE'S ACCOUNTS WERE EXAMINED BY THE TPO, WHO HAS NOT POINTED OUT EVEN A SINGLE RUPEE EXPENSE ATTRIBUTABLE TO THE DIRECT TRANSACTIONS BETWEEN HO AND INDIAN CUSTOMERS. WHEN THIS IS THE POSITION OBTAINING IN THIS CASE, WE FAIL TO COMPREHEND AS TO HOW AN INCOME CAN BE ESTIMATED IN THIS REGARD. SUCH ADDITION MADE BY THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO BE DELETED. THIS GROUND IS ALLOWED. 14 . THE AFORESAID ORDER HAS BEEN FOLLOWED IN THE ASSESSMENT YEAR 2008 - 09 IN ITA NO. 6227/DEL/2012 VIDE ORDER DATED 21.02.2014 AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 8 OF THE SAID ORDER WHICH READ AS UNDER: 8. EVEN AS LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUBMITS THAT, IN THE ABSENCE OF ASSESSEE S COOPERATION BY S UBMISSION OF REQUISITE INFORMATION, THE ASSESSING OFFICER HAD NO OPTION EXCEPT TO RESORT TO THIS ADDITION, ON ESTIMATE BASIS, LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY THE TRIBUNAL S ORDER DATED 31ST OCTO BER 2013 IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. IN THE ASSESSMENT ORDER AND DRP S ORDER ALSO, THE STAND TAKEN IN THE EARLIER YEARS IS RE ITERATED. RESPECTFULLY FOLLOWING VIEWS OF THE COORDINATE BENCH ON THIS ISSUE IN RESPECT OF AN EARLIER ASSESSMENT YEAR, WE DELETE THE IMPUGNED ADDITION OF RS 86,571,076. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 15 . SINCE, THE FACTS FOR THE YEAR UNDER CON SIDERATION ARE SIMILAR TO THE FACTS INVOLVED IN THE ASSESSMENT YEARS 2006 - 07 AND 2008 - 09, SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER S FOR THOSE ASSESSMENT YEARS. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 11 16 . VIDE GROUND NOS. 4 TO 4.2 , THE GRIEVANCE OF THE ASSESSEE RELATES TO THE AD - HOC DISALLOWANCE OF BUSINESS EXPENSES AMOUNTING TO RS.26,05,000/ - . 17 . FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE VIDE QUESTIO NNAIRE DATED 10.02.2011 WAS ASKED TO SUBMIT DETAILS/SUMMARIES OF EXPENSES. HE FURTHER OBSERVED THAT THE ASSESSEE FAILED TO SUBMIT THE DETAILS. THEREFORE, DUE TO LACK OF EVIDENCES , FOLLOWING DISALLOWANCE S WERE MADE ON AD - HOC BASIS: SL. NO. HEADS OF EXPENSE S AMOUNT AS PER AUDITED ACCOUNTS(RS) AMOUNT DISALLOWED (RS) 1. REPAID AND MAINTENANCE 82,05,734.00 8,20,000.00 2. COMMUNICATIONS 18,52,991.00 1,85,000.00 (INCLUDING PERSONAL USE OF EMPLOYEES) 3. MISCELLANEOUS EXPENSES 32,45,989.00 16,00,000.00 (BREAKUP /SUMMARY HAS NOT BEEN SUBMITTED) TOTAL RS.26,05,000.00 18 . THE AO ALSO MENTIONED THAT THE OBJECTIONS OF THE ASSESSEE WERE ADDRESSED BY THE LD. DRP VIDE PARA 9. HE, THEREFORE, MADE THE DISALLOWANCE OF RS.26,05,000/ - . 19 . BEING AGGRIEVED THE ASSESSEE I S IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE OBJECTION S RAISED BY THE ASSESSEE ON THIS ISSUE WERE NOT ADJUDICATED BY THE LD. DRP WHO SIMPLY STATED THAT THE VARIOUS JUDICIAL PRONOUNCEMENTS SUBMITTED BY THE ASSESSEE WERE DISTINGUISHABLE F ROM THE FACTUAL MATRIX. A REFERENCE WAS MADE TO PARA 9 OF THE ORDER PASSED BY THE LD. DRP. HE FURTHER SUBMITTED THAT THE ASSESSEE FURNISHED THE DETAILS WHICH ARE PLACED AT PAGE NOS. 386 TO 1818 OF THE ASSESSEE S PAPER BOOK, WERE IGNORED BY THE LD. DRP AS W ELL AS THE AO AND THE AD - HOC DISALLOWANCE WAS MADE . ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 12 20 . IN HIS RIVAL SUBMISSIONS, THE LD. CIT DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 21 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE VARIOUS DETAILS AND EVIDENCES FURNISHED BY THE ASSESSEE WERE NOT CONSIDERED BY THE LD. DRP WHICH IS EVIDENT FROM ITS OBSERVATION GIVEN IN PARA 9 OF THE ORDER DATED 26.11.2013 WHICH READ AS UNDER: 9. THE TA XPAYER HAS CITED IN ITS SUBMISSION VARIOUS JUDICIAL PRONOUNCEMENTS WHICH HAVE BEEN CONSIDERED BY THIS PANEL AND ARE DISTINGUISHABLE FROM THE FACTUAL MATRIX IN THE CASE OF THE TAXPAYER. ACCORDINGLY, A DETAILED DESCRIPTION OF SUCH ANALYSIS IS NOT BEING REPRO DUCED IN THIS ORDER. 22 . IT IS ALSO NOTICED THAT NEITHER THE AO NOR THE LD. DRP HAD NOT GIVEN ANY COGENT REASON AND THE BASIS WHILE MAKING AD - HOC DISALLOWANCE. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, DEEM IT APPROPRIATE TO REMAND THIS ISSU E BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH AFTER PROPER VERIFICATION FROM THE DOCUMENTS FURNISHED BY THE ASSESSEE BEFORE THE LD. DRP , IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 23 . VIDE GRO UND NO. 5, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CHARGING OF INTEREST U/S 234B OF THE ACT. 24 . AS REGARDS TO THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 31.10.2013 IN ITA NO.8 84/DEL/2011 FOR THE ASSESSMENT YEAR 2006 - 07. ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 13 25 . IN HIS RIVAL SUBMISSIONS, THE LD. CIT DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 26 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL AVAILABLE ON THE RECORD, IT IS NOTICED THA T AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED BY THE ITAT FOR THE ASSESSMENT YEAR 2006 - 07 IN ITA NO. 884/DEL/2011 VIDE ORDER DATED 31.10.2013 WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 5.1 TO 5.3 WHICH READ AS UNDER: 5 .1 THE ASSESSEE HAS RAISED AN ADDITION GROUND AGAINST THE CHARGING OF INTEREST U/S 234B OF THE ACT. THE SAME, BEING INVOLVING A PURE QUESTION OF LAW, IS ADMITTED FOR DECISION ON MERITS. 5.2 HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATER IAL ON RECORD IN RESPECT OF THIS ADDITIONAL GROUND, WE FIND THAT THE ISSUE OF CHARGING INTEREST U/S 234B IN THE PRESENT CASE IS HO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN DIT (INTERNATIONAL TAXATION) V. NGC NETWORKASIA LLC [2009] 313 ITR 187, IN WHICH IT HAS BEEN HELD THAT WHEN THE DUTY IS CAST ON THE PAYER TO DEDUCT TAX AT SOURCE, ON FAILURE OF THE PAYER TO DO NO INTEREST CAN BE CHARGED FROM THE PAYEE ASSESSEE U/S 234B. THE SAME VIEW HAS BEEN REITERATED IN DIT (IT) V. K RUPP UDHE GMBH [2013] 40 TAXMANN.COM 38 (BOM.) . AS THE ASSESSEE BEFORE US IS A NON - RESIDENT, NATURALLY ANY AMOUNT PAYABLE TO IT WHICH IS CHARGEABLE TO TAX UNDER THE ACT , IS OTHERWISE LIABLE FOR DEDUCTION OF TAX AT SOURCE. 5.3 AT THIS JUNCTURE, IT IS RELEVANT TO NOTE THAT THE FINANCE ACT, 2012 HAS INSERTED A PROVISO, AT THE END OF SECTION 209(1) W.E.F. 1.4.2012 WHICH PROVIDES THAT FOR COMPUTING LIABILITY FOR ADVANCE TAX, INCOME - TAX CALCULATED UNDER CLAUSE (A) OR (B) OR (C) SHALL NOT, IN EACH CASE, BE REDUCED BY THE AFORESAID AMOUNT OF INCOME - TAX WHICH WOULD BE DEDUCTIBLE OR COLLECTIBLE AT SOURCE DURING THE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOM E, IF THE PERSON RESPONSIBLE FOR DEDUCTING TAX HAS PAID OR CREDITED SUCH INCOME WITHOUT DEDUCTION OF TAX OR IT HAS BEEN RECEIVED OR DEBITED BY THE PERSON RESPONSIBLE FOR COLLECTING TAX ITA NO . 1047 /DE L/201 4 LUMMUS TECHNOLOGY HEAT TRANSFER BV 14 WITHOUT COLLECTION OF SUCH TAX. THE EFFECT OF THIS INSERTION IS TO NULL IFY THE MANDATE OF THE ABOVE JUDGMENTS HOLDING THAT NO INTEREST IS CHARGEABLE IF THE INCOME RECEIVED BY SUCH ASSESSEE IS OTHERWISE LIABLE FOR DEDUCTION OF TAX AT SOURCE IN THE HANDS OF THE PAYER. THE POINT WORTH NOTING IN THIS REGARD IS THAT THE FINANCE AC T, 2012 HAS INSERTED THIS PROVISO PROSPECTIVELY W.E.F. 1.4.2012. EVEN THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2012 PROVIDES THAT: 'THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 2012 AND WOULD, ACCORDINGLY, APPLY IN RELATION TO ADVAN CE TAX PAYABLE FOR THE FINANCIAL YEAR 2012 - 13 AND SUBSEQUENT FINANCIAL YEARS'. IT, THEREFORE, BECOMES VIVID THAT THE INSERTION OF THE PROVISO TO SECTION 209(1) IS PROSPECTIVE AND THE SAME CANNOT BE APPLIED RETROSPECTIVELY TO THE YEAR UNDER CONSIDERATION. I N THAT VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS, WE HOLD THAT NO INTEREST CAN HE CHARGED U/S 234B OF THE ACT FOR THE YEAR UNDER CONSIDERATION. THIS GROUND IS ALLOWED. 27 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDE R THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 2 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . (ORDER P RONOUNCED IN THE COURT ON 23 /03 /2018 ) SD/ - SD/ - ( BEENA A. PILLAI ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE D: 23 /03 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR