ITO, New Delhi V. M/s. Metals Russia India Pvt. Ltd., New Delhi

ITA 108/DEL/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5684 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 08-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 06-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JYOTI NARULA
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 143(3); 92D; 92B; 92A; 92E; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA.NO.108/DEL./2014 ASSESSMENT YEAR 2009-2010 THE INCOME TAX OFFICER, WARD-6(4), ROOM NO.418, C.R. BUILDING, I.P. ESTATE, NEW DELHI. VS. M/S. METALS RUSSIA INDIA PVT. LTD., D-1/1209, POCKET-D-1, VASANT KUNJ, NEW DELHI 110 070. PAN AAECM2423Q (APPELLANT) (RESPONDENT) FOR REVENUE : MS. RINKU SINGH, SR. DR FOR ASSESSEE : MS. JYOTI NARULA, C.A. DATE OF HEARING : 05.08.2019 DATE OF PRONOUNCEMENT : 08 .08.2019 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IX, NEW DELHI, DATED 31.10.2013, FOR THE A.Y. 2009-2010 ON THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE 2 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. PRESUMPTION OF THE A.O. THAT THE ASSESSEE MIGHT BE RECEIVING EQUAL AMOUNT OF REMUNERATION IN THE SUBSEQUENT YEAR IS NOT ACCEPTABLE DESPITE THE FACT THAT THE ASSESSEE PROVIDED SIMILAR SERVICES DURING THE RELEVANT ASSESSMENT YEAR AS CLEARLY HELD BY THE A.O.? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.67,71,145/- MADE BY THE A.O. BY ESTIMATING THE NET PROFIT AT 11.11% OF THE COST INCURRED, ENTIRELY ON THE SUBMISSION OF THE ASSESSEE AND COMPLETELY IGNORING THE DETAILED REASONS GIVEN BY THE A.O. IN THE ASSESSMENT ORDER? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE A.O. ERRED IN APPLYING SECTION 44BBB AND ERRED IN APPLYING NET PROFIT AT 11.11% OF COST WITHOUT APPRECIATING THE FACT THAT THE A.O. HAS DRAWN INFERENCES FROM THE PROVISION OF SECTION 44BBB AS THE CASE OF THE ASSESSEE WAS SIMILAR TO SERVICES IN CIVIL CONTRACTOR OF TURN-KEY STEEL PLANT? 3 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE AND M/S MONT BLANC TRADING COMPANY ARE NOT ASSOCIATED ENTERPRISES WITHOUT DISCUSSING THE DETAILED REASONS GIVEN BY THE A.O. FOR TREATING THESE CONCERNS AS ASSOCIATED ENTERPRISES U/S 92A & 92F(III)? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT NO TRANSFER PRICING STUDY WAS DONE BY THE A.O. BECAUSE THE ASSESSEE FAILED TO PROVIDE THE DETAILS REGARDING THE INTERNATIONAL TRANSACTION DESPITE BEING SPECIFICALLY ASKED BY THE A.O.? 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) IN HOLDING THAT THE PROVISIONS OF SECTION 92E READ WITH SECTION 271BA AND PROVISIONS OF SECTION 92D READ WITH SECTION 271G ARE NOT APPLICABLE? 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) FAILED TO DISCUSS THE STATEMENT 4 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. ON OATH RECORDED U/S 131 OF THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY? 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS A DOMESTIC COMPANY AND FILED RETURN OF INCOME DECLARING LOSS OF RS.87,32,064/-. THE A.O. COMPLETED THE ASSESSMENT UNDER SECTION 143(3) VIDE ORDER DATED 16.12.2011 AT THE INCOME OF RS.80,58,710/-. IGNORING THE COMPUTATION ON INCOME GIVEN BY THE ASSESSEE, THE AO COMPUTED THE PROFIT FROM BUSINESS APPLYING RATE OF 11 % ON THE TOTAL COST INCURRED ON THE CONTRACT. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IDENTIFYING, SCOUTING, NEGOTIATING AND IDENTIFYING OPPORTUNITIES FOR FOREIGN COMPANIES IN INDIAN STEEL MARKET. THE APPEAL BEFORE THE LD. CIT(A) WAS REGARDING THE RECEIPTS AND LOSS INCURRED BY THE APPELLANT IN SUCH A CONTRACT, DETAILS OF WHICH IS NOTED IN PARA 3.2 OF THE APPELLATE ORDER IN WHICH IT IS ALSO NOTED THAT ASSESSEE WAS APPOINTED AS SUB-CONTRACTOR. A CONTRACT WAS ENTERED INTO BETWEEN MOUNT BLANC TRADING AND THE ASSESSEE COMPANY FOR THE REPLACEMENT OF THE CONVERTER SHELL, TRUNNION RING, PEDESTAL ASSEMBLY AND LUBRICATION SYSTEM OF CONVERTOR I AT 5 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. SMS-II, BOKARO STEEL PLANT, BOKARO. THE TOTAL REVENUE FOR WORK WAS FIXED AT RS.9.92 CRORES FOR WHICH CONSIDERATION WAS IN INR. THE ASSESSEE COMPANY FURTHER APPOINTED MUKUND ENTERPRISES LTD., AS A BACK TO BACK SUB-CONTRACTOR FOR THE CONTRACT VALUE OF RS.8,45,50,000/-. THE CRUX OF THE ISSUE WAS THAT THE A.O. HELD THAT THE FOREIGN CURRENCY EXPENSES ON OCEAN FREIGHT WHICH RESULTED IN THE LOSS IS NOT ALLOWABLE AS THIS EXPENSE WAS INCURRED BY THE ASSESSEE NOT ACTING AS AN INDEPENDENT COMPANY. ALTHOUGH THE CONSULTANCY CONTRACT AGREEMENT BETWEEN THE FOREIGN COMPANY AND THE ASSESSEE IN ONE HAND AND THE OTHER SUB- CONTRACT BETWEEN THE ASSESSEE AND THE DOMESTIC COMPANY ON THE OTHER HAND WERE FOR THE YEAR RELEVANT TO AY 2008-09, THE AO INFERRED THAT THE PROVISIONS OF THE CONTRACT DATED 16.07.2007 WERE APPLICABLE TO THE ASSESSMENT YEAR 2009-10 AND ALSO THAT SERVICES DEFINED IN THAT CONTRACT WERE RELEVANT TO THE ASSESSMENT YEAR 2009-10. HOWEVER, THIS CONTRACT HAS NOTHING TO DO WITH THE CONTRACT ENTERED WITH SAIL WHICH IS RELEVANT IN THIS APPEAL. THE A.O. FIND SUPPORT FROM THE PROVISIONS OF SECTION 44BBB OF THE I.T. ACT AND APPLIED 6 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. PROFIT OF 11% OF THE COST AND COMPUTED THE PROFIT FROM BUSINESS AND PROFESSION IN A SUM OF RS.67,71,145/-. THE ASSESSEE CHALLENGED THIS ADDITION BEFORE THE LD. CIT(A) AND HAS RAISED SEVERAL ARGUMENTS IN SUPPORT OF THE SAME. 3. THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT INFERENCE OF AO THAT THE FOREIGN CURRENCY EXPENSES ON OCEAN FREIGHT WHICH RESULTED IN THE LOSS WAS INCURRED AS THE ASSESSEE COMPANY WAS NOT ACTING AS AN INDEPENDENT COMPANY IS NOT CORRECT. THE ASSESSEE EXPLAINED BEFORE A.O. THAT IT HAS INCURRED LOSS IN THE CONTRACT WITH BOKARO STEEL PLANT. THE MAIN REASON FOR THE LOSS WAS DUE TO LONG TENDERING PROCESS AND PRICE RISE. THE ASSESSEE COMPANY HAD GIVEN THE QUOTE AFTER KEEPING ITS MARGIN ON THE ESTIMATES OBTAINED FROM THE LOCAL SUB CONTRACTOR. HOWEVER, BOKARO STEEL PLANT HAS TAKEN VERY LONG TIME IN THE PROCESS OF TENDERING AND AWARDING THE CONTRACT. BY THAT TIME PRICES INCREASED SUBSTANTIALLY AND THE LOCAL SUB CONTRACTOR ALSO INCREASED ITS PRICE SUBSTANTIALLY. FURTHER, THE ASSESSEE COMPANY INCURRED INCREASED COST OF OCEAN FREIGHT BECAUSE OF NON AVAILABILITY OF SCI VESSEL AT THE TIME OF DELIVERY OF 7 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. EQUIPMENTS. IN FACT THE ASSESSEE COMPANY HAD TO CHARTER A VESSEL FOR DELIVERY OF EQUIPMENTS ON TIME TO AVOID DELAY IN COMPLETION SCHEDULE AND LIQUIDITY DEMURRAGE. 3.1. THE A.O., HOWEVER, DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND HELD THAT ASSESSEE EXPLAINED ONLY THE EXPENSE PART OF THE CONTRACT AND DOES NOT ADDRESS THE ISSUE ON REVENUE SIDE. THE AO HELD THAT MR. RANJEET KUMAR, DIRECTOR OF THE APPELLANT COMPANY IS ONLY AN EMPLOYEE DIRECTOR WITHOUT ANY SHARES IN THE COMPANY. HENCE, THE AO OBSERVED THAT REVENUE BIFURCATION OF THE CONTRACT HAS NOT BEEN DECIDED ON INDEPENDENT CONSIDERATIONS HAVING REGARD TO SCOPE OF SERVICES TO BE EXECUTED, RISK ASSUMED AND ASSET EMPLOYED. THIS HAS RESULTED IN TWEAKING OF PROFITS IN FAVOUR OF SUPPLY AND OFF SHORE SERVICES GENERALLY NOT TAXABLE IN INDIA AND AGAINST THE ONSHORE PORTION ON CONTRACT. IT CAN BE NOTED THAT THE PRICE OF THE PART SUB-CONTRACTED TO THE ASSESSEE COMPANY WAS STATED TO BE PORTION OF PRICE PAYABLE IN INDIA RUPEES PEGGED AT RS.9.92 CRORES INCLUSIVE OF ALL TAXES AND DUTIES. OUT OF THIS PRICE, THE ASSESSEE WAS ASSIGNED TO UNDERTAKE ALL THE ACTIVITIES ASSIGNED TO MONT 8 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. BLANC TRADING COMPANY, MAURITIUS INCLUDING OCEAN FREIGHT, THE PRICE FOR WHICH WAS PAYABLE IN FOREIGN CURRENCY. IN THE ASSESSMENT ORDER, THE AO IS TRYING TO ESTABLISH THAT ASSESSEE IS NOT AN INDEPENDENT INDIAN COMPANY AND HENCE LIABLE TO BE TAXATION FOR THE ENTIRE PROCEEDS OF THE CONTRACT VALUE. THUS, THE AO HELD THAT THE APPELLANT COMPANY MUST BE HAVING A MARGIN OF PROFIT IN THE ENTIRE CONTRACT VALUE. THUS THE INFERENCE OF AO IS THAT IT CANNOT BE A CASE THAT ALL THE COST INVOLVED ARE RELATED TO THE ASSESSEE AND MONT BLANC BEING A PRINCIPAL PARTY OF THE CONTRACT WOULD NOT GET ANYTHING FROM THIS VENTURE. THE AO ALSO NOTICED FROM THE AGREEMENT THAT THE ENTIRE SCOPE OF THE WORK HAS BEEN SUB CONTRACTED TO THE APPELLANT BY MONT BLANC TRADING COMPANY. IN VIEW OF THIS, THE AO INFERRED THAT THE SCHEDULE OF PRICES GIVEN IN THE AGREEMENT IS ONLY FOR THE PURPOSE OF COST ALLOCATION BY SAIL AND IT HAS NOTHING TO DO WITH THE ACTUAL DISTRIBUTION OF CONTRACT PROCEEDS AMONG CONTRACTING PARTIES. THE FACT EMERGED FROM THE AGREEMENT THAT INDIAN COMPANY SHOULD HAVE INCOME OF ONLY INR PORTION EVEN THOUGH IT HAS EXPOSURE OF FOREIGN CURRENCY PAYMENT IN 9 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. RESPECT OF OCEAN FREIGHT IS NOT ACCEPTED BY THE AO ON THE BASIS OF PRICING SCHEDULE GIVEN IN THE CONTRACT WITH SAIL. 3.2. THE ASSESSEE REITERATED THE SUBMISSIONS BEFORE THE LD. CIT(A) AND ARGUED THAT THE EXPENDITURE INCURRED ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND A.O. HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE. THE A.O. HAS MERELY CONJECTURED THAT THE FOREIGN CURRENCY EXPENSES ON OCEAN FREIGHT WHICH RESULTED IN TO LOSS WERE INCURRED AS THE ASSESSEE COMPANY WAS NOT ACTING AS AN INDEPENDENT COMPANY. IT WAS PLEADED PARTIES TO CONTRACT ARE NOT A.ES. THE ASSESSEE RELIED UPON SEVERAL DECISIONS. THE ASSESSEE, THEREFORE, PRAYED THAT ENTIRE ADDITION MAY BE DELETED. THE ASSESSEE ALSO OBJECTED TO THE OBSERVATION OF THE A.O. THAT THE PROVISIONS OF CONTRACT WERE APPLICABLE TO ASSESSMENT YEAR UNDER APPEAL AND ALSO THAT SERVICES DEFINED IN THAT CONTRACT WERE RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE ALSO OBJECTED TO THE TREATMENT AND SUBMITTED THAT TERMS AND CONDITIONS AGREED IN THE EARLIER ASSESSMENT ORDER CANNOT BE THE BASIS FOR COMPUTATION OF NET PROFIT OF THE CURRENT ASSESSMENT YEAR. 10 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. THE ASSESSEE OBJECTED TO THE OBSERVATIONS OF THE A.O. ON THREE ISSUES THAT PROCEEDED TO THE ESTIMATE OF PROFIT ON THE BASIS OF COST + MARGIN METHOD. 3.3. THE A.O. INFERRED THAT THE REVENUE BIFURCATION OF THE CONTRACT HAS NOT BEEN DECIDED ON INDEPENDENT CONSIDERATIONS HAVING REGARD TO THE SCOPE OF SERVICES TO BE EXECUTED, RISK ASSUMPTION AND ASSETS EMPLOYED. THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE COMPANY WITH ITS ASSUMED ASSOCIATED ENTERPRISE M/S. MONT BLANC IS AN INTERNATIONAL TRANSACTION. THE ASSESSEE COMPANY HAS NOT MAINTAINED ANY DOCUMENTATION AS PRESCRIBED UNDER SECTION 92D OF THE I.T. ACT. THE A.O. ALSO MENTIONED THAT THE DEFINITION OF INTERNATIONAL TRANSACTION IS DEFINED UNDER SECTION 92B AND HELD THAT THE PROVISIONS OF LAW CLEARLY SHOW THAT TRANSACTION BETWEEN ASSESSEE AND ITS ASSOCIATED ENTERPRISE IS IN THE NATURE OF INTERNATIONAL TRANSACTION SUBJECT TO APPLICATION OF TRANSFER PRICING LAW. THE ASSESSEE OBJECTED TO THESE OBSERVATIONS OF THE A.O. BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED THAT ASSESSEE COMPANY, M/S. MONT BLANK TRADING COMPANY AND M/S. MZTM, UKRAINE 11 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. WHICH ARE PARTIES TO THE EXECUTION OF THE CONTRACT AWARDED BY STEEL AUTHORITY OF INDIA ARE NOT ASSOCIATED ENTERPRISES IN TERMS OF PROVISIONS OF SECTION 92A OF THE I.T. ACT. THE ASSESSEE COMPANY HAS ONLY ONE ASSOCIATED ENTERPRISE I.E., M/S. INTERNATIONAL STEEL AND TUBE INDUSTRIES LIMITED [ISTIL] WHICH IS THE 99.99% SHARE HOLDER OF THE ASSESSEE COMPANY. THEREFORE, PARTIES TO THE CONTRACT AWARDED ARE NOT ASSOCIATED ENTERPRISE OF ISTIL IN TERMS OF PROVISIONS OF SECTION 92A OF THE I.T. ACT. THE ASSESSEE, THEREFORE, SUBMITTED THAT PROVISIONS OF INTERNATIONAL TAXATION LAW WOULD NOT APPLY TO THE CASE. 3.4. THE LD. CIT(A) CONSIDERING THESE SUBMISSIONS OF THE ASSESSEE HELD THAT PROVISIONS OF TRANSFER PRICING ARE NOT APPLICABLE TO THE FACTS OF THE CASE AND FURTHER THE A.O. DID NOT GET ANY OPINION OF THE TRANSFER PRICING AUTHORITIES ON THIS ISSUE. THEREFORE, PROVISIONS OF TRANSFER PRICING LAW ARE NOT APPLICABLE IN THE CASE OF ASSESSEE. THE FINDINGS OF THE LD. CIT(A) IN PARA-6 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER : 12 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. 6. THE REASONS GIVEN BY THE AO AND THE SUBMISSION OF THE APPELLANT ARE CONSIDERED. FIRST OF ALL THE AO ATTEMPTED TO TREAT THE APPELLANT AS ASSOCIATED ENTERPRISE U/S 92A AND SECTION 92F(III) OF THE ACT. HOWEVER, BASED ON THE RELEVANT DOCUMENT IT IS SEEN THAT THE APPELLANT HAS ONLY ONE ASSOCIATED ENTERPRISE THAT IS M/S INTERNATIONAL STEEL AND TUBE INDUSTRIES LIMITED (ISTIL) WHICH IS THE 99.99% SHARE HOLDER OF THE ASSESSEE COMPANY. THE CONTRACT AGREEMENT IS BETWEEN APPELLANT, M/S ' MONT BLANC TRADING COMPANY, MZTM UKRAINE AND SAIL. THESE TWO COMPANIES ARE NOT ASSOCIATED ENTERPRISES OF ISTIL AND HENCE THE APPELLANT CANNOT BE TREATED AS ASSOCIATED ENTERPRISE OF THE TWO COMPANIES WITH WHOM THE CONTRACT WAS ENTERED. SECONDLY, THE AO ALSO ATTEMPTED TO TREAT THE CONTRACT AS INTERNATIONAL TRANSACTION U/S 92B OF THE ACT. IN THE CASE OF APPELLANT THE DEFINITION OF INTERNATIONAL TRANSACTION AS STIPULATED IN SECTION 92B IS NOT APPLICABLE AS SERVICES ARE BEING RENDERED DIRECTLY TO SAIL AND CONSIDERATION FOR RENDERING OF SERVICES IS ALSO BEING RECEIVED FROM SAIL IN 13 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. INDIAN RUPEE. WITHOUT ANY CONSIDERATION BEING GIVEN TO OR BEING RECEIVED FROM M/S MONT BLANC TRADING COMPANY, THE CONTRACT CANNOT BE TURNED AS INTERNATIONAL TRANSACTION. THIRDLY, THE AO ALSO ATTEMPTED TO POINT OUT THAT THIS IS AN INTERNATIONAL TRANSACTION AND THE APPELLANT FAILED TO FURNISH THE DOCUMENTATION U/S 92D AND U/S 92E OF THE ACT. IT IS PERTINENT TO NOTE THAT THE INTERFERENCE DRAWN BY AO IS BASED ON THE SCOPE OF WORK AS ENTERED IN THE AGREEMENT. SINCE THE TRANSACTION IS NOT AN INTERNATIONAL TRANSACTION AS DISCUSSED ABOVE, THE DOCUMENTS PRESCRIBED U/S 92D AND U/S 92E OF THE ACT ARE NOT RELEVANT IN THIS CASE. THE AO ALSO ATTEMPTED TO BRING THE TRANSACTION UNDER THE TRANSFER PRICING MODE IN VIEW OF THE FACT THAT IN THE PREVIOUS A.Y. THE ASSESSEE HAD SUBMITTED TRANSFER PRICING REPORT ON TRANSACTIONS UNDER CONSULTANCY AGREEMENT ENTERED INTO WITH M/S MONT BLANC TRADING COMPANY. THE PRESCRIBED FORM NO. 3 GEB FOR TRANSFER PRICING SUBMITTED BY THE APPELLANT FOR A.Y. 2008-09 INDICATES THAT THE ASSESSEE COMPANY HAD ENTERED INTO ONLY ONE TRANSACTION WITH ITS ASSOCIATED 14 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. ENTERPRISE IN THE A.Y. 2008-09 THAT IS WITH ISTIL. THE NAME OF M/S MONT BLANC TRADING COMPANY WAS NOT EVEN NAMED AS ONE OF THE ASSOCIATED ENTERPRISE IN THIS CONSULTANCY AGREEMENT. THUS, THE FINDING OF THE AO IS FACTUALLY INCORRECT. THE AO ALSO DID NOT ATTEMPT TO GET THE OPINION OF THE TRANSFER PRICING AUTHORITY ON THIS ISSUE. FINALLY, LEAVING ALL THESE ISSUES ASIDE, THE AO APPLIED THE PROVISION OF SECTION 44BBB OF THE ACT WHICH IS DISCUSSED IN SUCCEEDING PARAGRAPHS OF THIS ORDER. THUS, INSTEAD OF SAILING IN THE IMAGINARY WATER, THE A.O. COULD HAVE BROUGHT SOME FACTS ON RECORD TO THE CONTRARY WHAT IS STATED IN THE SCOPE OF WORK INCLUDED IN THE CONTRACT. IN THE LIGHT OF FACTS GIVEN BY THE APPELLANT AND IN ABSENCE OF ANY FACT CONTRARY TO THESE FACTS IT IS FOUND THAT MONT BLANC TRADING COMPANY IS NOT AN ASSOCIATED ENTERPRISE OF THE ASSESSEE COMPANY. THE PROVISIONS OF SECTION 92E READ WITH SECTION 271 BA OF THE ACT ARE NOT APPLICABLE. THE PROVISIONS OF SECTION 92D READ WITH SECTION 271G OF THE ACT ARE NOT APPLICABLE. 15 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. 3.5. THE ASSESSEE FURTHER OBJECTED TO THE ORDER OF THE A.O. TO APPLY PROVISIONS OF SECTION 44BBB OF THE I.T. ACT. THE ASSESSEE RELIED UPON SEVERAL DECISIONS IN THIS REGARD THAT PROVISIONS OF SECTION 44BBB WOULD NOT APPLY TO THE FACTS OF THE CASE. THE LD. CIT(A) ACCEPTED THE EXPLANATION OF ASSESSEE AND DELETED THE ADDITION ON MERIT BY HOLDING THAT PROVISIONS OF SECTION 44BBB WOULD NOT APPLY TO THE CASE OF THE ASSESSEE. THE FINDINGS OF THE LD. CIT(A) IN THE IMPUGNED ORDER IN PARA 7.4 ARE REPRODUCED AS UNDER : 7.4. THE REASONS GIVEN BY THE AO, SUBMISSIONS AND JUDICIAL PRONOUNCEMENTS CITED BY THE APPELLANT AND THE FACTS ON RECORD ARE CONSIDERED. FROM A PLAIN READING OF THE PROVISIONS IT IS EVIDENT THAT THE SECTION PROVIDES FOR THE PROFITS OF A FOREIGN COMPANY, ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION OR THE BUSINESS OF ERECTION OF PLANT OR MACHINERY OR TESTING OR COMMISSIONING THEREOF, IN CONNECTION WITH A TURNKEY POWER PROJECT APPROVED BY THE CENTRAL GOVERNMENT IN THIS BEHALF SHALL BE DEEMED TO BE EQUAL TO TEN PER CENT OF THE AMOUNT PAID OR PAYABLE WHETHER IN OR OUT OF INDIA. 16 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. THE SECTION DOES NOT GIVE THE AO ANY SCOPE, TO STEP INTO THE SHOES OF THE LEGISLATURE AND : 1. TO APPLY A PERCENTAGE HIGHER THAN THE PRESCRIBED PERCENTAGE I.E. USE 11% INSTEAD OF 10%. 2. TO CHANGE THE BASE ON WHICH THE PROFIT OF 10% IS TO COMPUTED FROM THE GROSS RECEIPTS RECEIVED BY AN ENTITY TO THE COST INCURRED BY AN ENTITY. 3. TO ADD THE DISALLOWANCES THAT WERE MADE BY THE ASSESSEE COMPANY WHILE COMPUTING ITS TAXABLE INCOME TO THE DEEMED PROFITS COMPUTED BY THE ASSESSING OFFICER. THE TAXABLE INCOME OF THE ASSESSEE COMPANY AS COMPUTED BY THE ASSESSING OFFICER IS AS UNDER: PROFIT FROM GAINS OF BUSINESS AND PROFESSION RS.67,71,145/- ADD : DEPRECIATION AS PER COMPANIES ACT RS. 2,75,6161- ADD: EXPENSES TO EXTENT DISALLOWANCE U/S.40(A) RS.1,51,686/- WORK CONTRACT EXPENSES DISALLOWED RS. 4,40,667/- 17 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. INCOME INCLUDED IN P&L A/C EXPENSES RS.6,72,465/- LESS : DEPRECIATION AS PER COMPANIES ACT RS.- 2,35,169/- INTEREST INCOME RS.-2,78,844/- PRELIMINARY EXP WRITTEN OFF U/S 35C RS.- 17,700/- RS.77,79,866/- ADD : INCOME FROM OTHER SOURCES RS. 2,78,844/- TOTAL TAXABLE INCOME AS ASSESSED BY THE ASSESSING OFFICER RS.80,58,710/- RS.67,71,145/- IS PROFIT DETERMINED BY THE ASSESSING OFFICER IN TERMS OF SECTION 44BBB OF THE ACT. THESE PROFITS HAVE BEEN COMPUTED @ 11% ON THE COST INCURRED BY THE ASSESSEE COMPANY. OTHER DISALLOWANCES ARE AS PER THE COMPUTATION OF INCOME GIVEN BY APPELLANT ALONG WITH RETURN OF INCOME. THE COMPUTATION OF TAXABLE INCOME AS DONE BY THE AO INDICATES THAT WHILE COMPUTING THE PROFIT U/S 44BBB OF THE ACT THE AO DISREGARDED ALL OTHER DISALLOWANCES OFFERED BY THE APPELLANT ON ITS OWN. 18 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER HAS ACCEPTED THE FACT THAT THE CONSULTANCY AGREEMENTS WERE NOT EFFECTIVE DURING THE YEAR UNDER CONSIDERATION. HE HAS A]SO OBSERVED THAT THE WORK DONE THE BY THE ASSESSEE COMPANY UNDER THE CONSULTANCY AGREEMENTS IS SIMILAR TO THE WORK DONE BY IT UNDER SERVICE CONTRACT AND THEREFORE INCOME COULD NOT HAVE ARISEN TO THE ASSESSEE COMPANY FOR THE SAME ACTIVITY TWICE. THE OBSERVATIONS OF THE ASSESSING OFFICER ARE QUOTED AS UNDER: ON THE PRINCIPLE OF FAIRNESS, IT WOULD NOT BE REASONABLE TO ATTRIBUTE ANY FURTHER AMOUNT FOR SUCH SERVICES AND FOR VARIOUS OTHER ACTIVITIES OF THE COMPANY WITH REGARD TO PARTICIPATION IN PRE- TENDERING PROCESS, NEGOTIATION, PROJECT COORDINATION, SIGNING AND CONCLUSION OF CONTRACT ETC. THE FINDINGS OF A.O. ARE BASED ON INCOHERENT LOGICS AND IMAGINARY FACTS. IN THE ASSESSMENT ORDER, THE A.O IS TRYING TO BRING SEVERAL ASPECTS WHICH ARE NOT RELATED TO 19 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. THE CASE. THERE IS NO ENQUIRY MADE ON ANY OF THESE ASPECTS. THE A.O IS BASICALLY TRYING TO READ THE CONTRACT AGREEMENT THROUGH IN BETWEEN THE LINE AND DRAW INFERENCES WHICH ARE NON-EXISTENT. THE BASIC RULE IS TO TAKE THE DOCUMENT OR THE AGREEMENT AS TRUE UNLESS OTHERWISE THERE IS PROOF TO THE CONTRARY. IT CAN BE UNDERSTOOD FROM THE ASSESSMENT ORDER THAT THE A.O IS TRYING TO ESTABLISH THAT THE SUBCONTRACT IS A TAX AVOIDANCE PLAN, THE APPELLANT IS NOT AN INDEPENDENT COMPANY, PARTS OF THE CONTRACT MOUNT IS KEPT WITH THE FOREIGN COMPANIES AND ONLY THE EXPENSES ARE BOOKED IN THE CASE OF APPELLANT TO CREATE ABNORMAL LOSS. THE DECISION IN THE CASE OF ANIL KUMAR MAHIPAL VS. ITO (2007) 162 TAXMAN 87 (JODH-TRIB) (MAG) WHEREIN IT IS HELD - WHETHER BEFORE BRANDING ANY TRANSACTION AS SHAM, ONUS IS UPON DEPARTMENT TO SHOW THAT APPARENT IS NOT REAL - HELD, YES - WHETHER WHERE ASSESSEE ADDUCES NECESSARY EVIDENCE IN SUPPORT OF HIS CASE, ASSESSING OFFICER IS DUTY BOUND TO FALSIFY OF ASSESSEES CLAIM WITH MORE CONVINCING AND APPEALING EVIDENCE - 20 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. HELD, YES - WHETHER MERE SUSPICION CANNOT LEAD TO CONCLUSION THAT TRANSACTION IS SHAM - HELD, YES THERE MAY BE SOME REFLECTION IN THE WHOLE AFFAIR THAT MAY CREATE SOME DOUBT. BUT, THE REFLECTION OF TRANSACTION IS INDEPENDENT OF THE GENUINENESS OF THE TRANSACTION. THE AO ATTEMPTED TO ESTABLISH THAT THIS IS A CASE OF TRANSFER PRICING, ARMS LENGTH PRICING AND SERVICE CONTRACT OF POWER PROJECT. BUT THERE WAS NO TP STUDY, NO CO 'ABLE UNCONTROLLED TRANSACTIONS FOR SUCH TREATMENT. THUS, ASSUMING THAT A PORTION OF PROFIT IS RETAINED BY MONT BLANC, THE AO APPLIED PROVISION OF 44BBB ON THE COST. AGAIN NOT RESTRICTING THE COMPUTATION OF INCOME AT 10% OF COST OR PAYMENT AS STIPULATED IN THE SEC.44 BBB OF THE ACT, THE AO EXTRAPOLATED THIS PERCENTAGE TO 11.11% AS THE TOTAL CONTRACT RECEIPT AMOUNT WAS NOT KNOWN. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ESTIMATION OF PROFIT MADE BY AO APPLYING THE PROVISIONS OF SECTION 44BBB IS DELETED. 21 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. 4. THE LD. D.R. MERELY RELIED UPON THE ORDER OF THE A.O. 5. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ISSUE OF TAXABILITY OF INCOME WAS CONSIDERED BY THE LD. CIT(A)-IX, NEW DELHI IN THE CASE OF THE SAME ASSESSEE FOR PRECEDING A.Y. 2008-2009 AND THE LD. CIT(A) VIDE ORDER DATED 12.12.2011 HAS PARTLY ALLOWED THE APPEAL OF ASSESSEE. COPY OF THE ORDER IS PLACED ON RECORD. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT ASSESSEE IS A DOMESTIC COMPANY. THEREFORE, PROVISIONS OF SECTION 44BBB OF THE I.T. ACT WOULD NOT APPLY TO THE FACTS AND CIRCUMSTANCES. SECTION 44BBB OF THE I.T. ACT APPLY TO THE FOREIGN COMPANIES AND ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION ETC., THE ASSESSEE HAS GIVEN REASONS FOR INCURRING THE LOSSES WHICH SHOULD NOT HAVE BEEN DOUBTED BY THE AUTHORITIES BELOW. THE A.O. HAS NOT POINTED-OUT ANY SPECIFIC DEFECTS IN MAINTENANCE OF THE BOOKS OF ACCOUNT BY ASSESSEE. THE LD. D.R. CONTENDED THAT 22 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. A.O. HAS NOT APPLIED PROVISIONS OF SECTION 44BBB OF THE I.T. ACT, BUT, ONLY FIND SUPPORT OF THIS PROVISION IN MAKING THE ADDITION AGAINST THE ASSESSEE. WE DO NOT FIND ANY JUSTIFICATION TO ACCEPT THE CONTENTION OF THE LD. D.R. ONCE THE PROVISIONS AND SECTION 44BBB OF THE I.T. ACT ARE NOT APPLICABLE TO DOMESTIC COMPANY AS IN THE CASE OF ASSESSEE, THEREFORE, THERE WERE NO JUSTIFICATION EVEN TO PLACE RELIANCE UPON THE SAME PROVISION WHILE MAKING THE ADDITION AGAINST THE ASSESSEE. THE A.O. HAS NOT GIVEN ANY REASONS AS TO WHY THE LOSSES INCURRED BY THE ASSESSEE ARE NOT ALLOWABLE DEDUCTION. FURTHER THE ASSESSEE HAS CLEARLY EXPLAINED THAT THE PARTIES TO THE CONTRACT ARE NOT ASSOCIATED CONCERNS OF THE ASSESSEE, THEREFORE, PROVISIONS ON INTERNATIONAL TAXATION LAW WOULD NOT APPLY IN THE CASE OF THE ASSESSEE. THE A.O. HAS NOT GIVEN ANY FINDING AGAINST THE ASSESSEE AS TO HOW THE PROVISIONS OF TRANSFER PRICING ARE APPLICABLE IN THE CASE OF THE ASSESSEE. THE LD. CIT(A) HAS EXAMINED THE ISSUE IN DETAIL AND IN HIS FINDINGS HAS SPECIFICALLY HELD THAT THE CONSIDERATION RECEIVED BY ASSESSEE FROM THE CONTRACT AWARDED COULD NOT BE TERMED AS AN INTERNATIONAL 23 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. TRANSACTION. THE A.O. DID NOT POINT-OUT TO ANY MATERIAL TO SHOW AS TO HOW THE TRANSACTION WERE INTERNATIONAL TRANSACTION IN THE MATTER. SINCE THE A.O. FAILED TO POINT-OUT THAT ANY OF THE PARTY TO THE CONTRACT WERE ASSOCIATED CONCERN OF THE ASSESSEE, THERE WERE NO JUSTIFICATION TO APPLY SUCH PROVISIONS OF LAW AGAINST THE ASSESSEE. IN CASE THERE WOULD HAVE BEEN ANY INTERNATIONAL TRANSACTION BETWEEN ASSESSEE AND OTHER PARTIES TO THE CONTRACT, THE A.O. SHALL HAVE TO REFER THE MATTER TO TRANSFER PRICING OFFICER FOR GETTING HIS OPINION INTO THE MATTER. BUT, A.O. DID NOT DO ANYTHING AND FRAMED REGULAR ASSESSMENT AGAINST THE ASSESSEE. THEREFORE, ON THIS SOLE REASON ITSELF, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT SUCH PROVISIONS ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE LD. D.R. FAILED TO POINT-OUT ANY ERROR IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ENTIRE ADDITION. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION. 7. IN THE RESULT, APPEAL OF THE DEPARTMENT DISMISSED. 24 ITA.NO.108/DEL./2014 M/S. METALS RUSSIA INDIA PVT. LTD., NEW DELHI. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (T.S. KAPOOR) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 08 TH AUGUST, 2019 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT E BENCH, DELHI 6. GUARD FILE. // BY ORDER // ASSISTANT REGISTRAR : ITAT DELHI BENCHES : DELHI.