Consulting Engineering Services (India) Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 1245/DEL/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4519 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 04-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Set aside
• Section: 92B; 144C; 48; 13; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.1058/DEL./2015 (ASSESSMENT YEAR : 2010-11) DCIT, CIRCLE 4 (1), VS. M/S. CONSULTING ENGINEERIN G SERVICES NEW DELHI. (INDIA) PVT. LTD., 57, MANJUSHA BUILDING, NEW DELHI 110 019. (PAN : AAACC5110G) ITA NO.1245/DEL./2015 (ASSESSMENT YEAR : 2010-11) M/S. CONSULTING ENGINEERING SERVICES VS. DCIT, CIR CLE 4 (1), (INDIA) PVT. LTD., NEW DELHI. 3 RD FLOOR, PLATINUM TOWER, 184, UDYOG VIHAR PHASE 1, GURGAON 122 016 (HARYANA). (PAN : AAACC5110G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR, ADVOCATE MS. ANANYA KAPOOR, ADVOCATE MS. SOUMYA SINGH, ADVOCATE REVENUE BY : SHRI SUKESH KUMAR JAIN, CIT DR DATE OF HEARING : 24.09.2020 DATE OF ORDER : 21.10.2020 O R D E R ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 2 PER KULDIP SINGH, JUDICIAL MEMBER : PRESENT CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE BEING DISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. 2. APPELLANT, DCIT, CIRCLE 4 (1), NEW DELHI (HEREIN AFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 24.12.2014 PASSE D BY THE AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TP O UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOM E-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2010- 11 ON THE GROUNDS INTER ALIA THAT :- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE DRP HAS ERRED IN HOLDING THAT THE EXPENSES INCURRED ON JOBS COMPLETED IN EARLIER YEARS AMOUNTI NG TO RS.4,82,26,872/- CANNOT BE SAID TO BE PRIOR PERIOD EXPENSES, IGNORING THE FACT THAT THE ASSESSEE CANNOT CLAIM EX PENSES AGAINST THE INCOME WHICH HAS NOT BEEN EARNED DURING THE YEA R UNDER CONSIDERATION. II) THE HON'BLE DRP HAS ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF EXPENSES INCURRED TOWARDS ENTRA NCE FEE AND SUBSCRIPTION AMOUNTING TO RS.8,462/- IGNORING THE F ACT THAT THE SAID EXPENSES IS NOT WHOLLY AND EXCLUSIVELY INCURRE D FOR THE BUSINESS. 3. APPELLANT, M/S. CONSULTING ENGINEERING SERVICES (INDIA) PVT. LTD. (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 24.12.2014 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 3 INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- A. GENERAL GROUND 1 1.1 THAT THE LD. AOIDRP HAVE ERRED ON THE FACTS AN D IN LAW IN MAKING THE TOTAL ADDITION OF INR 33,86,65,445/- UNDER THE PROVISIONS OF THE ACT. GROUND 2 2.1 THAT THE LD. AOIDRP HAVE ERRED ON THE FACTS AN D IN LAW IN NOT PROPERLY APPRECIATING AND CONSIDERING THE MA TERIALS FILED BEFORE THEM RESULTING IN THE ADDITIONS/DISALLOWANCE S. 2.2 THAT THE ADDITIONS MADE BY THE LD. AO/DRP ARE ILLEGAL, UNLAWFUL, WITHOUT JURISDICTION, BAD IN LAW AND HIGH LY EXCESSIVE. B. CORPORATE TAX RELATED GROUNDS GROUND 3: INCREASE IN VALUE OF CLOSING STOCK UNDER MATCHING PRINCIPLE CONCEPT INR 27,58,24,845/- 3.1 THAT THE LD. AO/DRP HAVE ERRED IN LAW AND ON F ACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITIO N OF INR 27,58,24,845 MADE ON ACCOUNT OF PURPORTED SHORT VAL UATION OF CLOSING JOB IN PROGRESS BY NOT CONSIDERING THE METH OD OF ACCOUNTING & ACCOUNTING STANDARD CONSISTENTLY FOLLO WED BY THE APPELLANT. 3.2 THE LD. AO/DRP HAVE ERRED IN LAW AND ON FACTS A ND CIRCUMSTANCES OF THE CASE IN MAKING THE DISALLOWANC E ON THE BASIS OF SIMILAR DISALLOWANCE MADE IN EARLIER ASSES SMENT YEARS WITHOUT APPRECIATING THAT PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. 3.3 THE LD. AO/DRP HAVE ERRED IN LAW AND ON FACTS A ND CIRCUMSTANCES OF THE CASE IN MAKING THE DISALLOWANC E ON A SELECTIVE BASIS WHICH HAS RESULTED IN TIMING-DIFFER ENCE ONLY. GROUND 4: DISALLOWANCE OF BUSINESS LOSSES IN RESPECT OF CONTRACTS COMPLETED DURING THE YEAR INR 5,31,08,347/- ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 4 4.1 THAT THE LD. AO/DRP HAVE ERRED IN LAW AND ON F ACTS AND CIRCUMSTANCES OF THE CASE IN MAKING THE ADDITION OF INR 5,31,08,347 ON ACCOUNT OF LOSSES INCURRED ON PRE 20 03 AS WELL AS POST 2003 PROJECTS COMPLETED DURING THE CURRENT FIN ANCIAL YEAR AS PER REGULARLY FOLLOWED METHOD OF ACCOUNTING. 4.2 THAT THE LD. AO/DRP WERE NOT JUSTIFIED IN MAKI NG THE ADDITION WITHOUT APPRECIATING THE FACT THAT THE IMP UGNED CONTRACTS WERE COMPLETED AT A REALIZABLE VALUE LOWE R THAN THE ESTIMATED CONTRACT REVENUE AND THEREBY LOSSES HAD B EEN BOOKED UPON COMPLETION OF SUCH CONTRACTS AS PER THE EXTANT ACCOUNTING STANDARD. 4.3 THE LD. AO/DRP HAVE ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN MAKING THE DISALLOWANC E OF INR 5,31,08,347 WITHOUT CONSIDERING THE DOCUMENTS PLACE D ON RECORD & WITHOUT EXERCISING THE STATUTORY POWERS VESTED UN DER THE ACT FOR OBTAINING INFORMATION. 4.4 THE LD. AO/DRP HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN RELYING ON THE DECISION OF EARLIER YEARS WI THOUT APPRECIATING THAT PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS. GROUND 5: DISALLOWANCE OF INR 6,50,891/- UNDER 40A(2)(B) 5.1 THE LD. AO/DRP HAVE ERRED ON FACTS OF THE CASE AND IN LAW IN DISALLOWING A SUM OF INR 6,50,891 AS BEING C OVERED UNDER 40A(2)(B) OF THE ACT WITHOUT APPRECIATING THAT THES E AMOUNTS WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS, BASED ON CONJECTURES AND SURMISES. 5.2 THE LD. AO/DRP HAVE ERRED ON FACTS AND IN LAW IN MAKING THE ADDITIONS UNDER SECTION 40A(2)(B) WITHOU T BRINGING ON RECORD ANY MATERIAL THAT SUCH EXPENDITURE IS EXC ESSIVE OR UNREASONABLE AND THEREFORE NOT MEETING THE BASIC CR ITERIA FOR MAKING DISALLOWANCE U/S 40A(2)(B). 5.3 THE LD. AO/DRP HAVE ERRED ON FACTS AND IN LAW IN MAKING THE AFORESAID ADDITION ON THE BASIS OF DISAL LOWANCE MADE IN THE PRECEDING ASSESSMENT YEAR WITHOUT APPRECIATI NG THAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. 5.4 WITHOUT PREJUDICE TO THE ABOVE SUB-GROUNDS, TH E LD. AO/DRP HAVE FURTHER ERRED ON FACTS OF THE CASE IN D ISALLOWING THE SUM OF INR 50,891 PAID BY THE APPELLANT TO PERS ONS WHO DO NOT FALL WITHIN THE AMBIT OF SECTION 40A(2) OF THE ACT. C. TRANSFER PRICING RELATED GROUNDS ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 5 GROUND 6 6.1 THE LD. TPO/DRP HAVE ERRED ON FACTS AND IN LAW IN MAKING THE ADDITION DESPITE THE FACT THAT THERE IS NO INTERNATIONAL TRANSACTION IN RELATION TO THE ADDITION. 6.2 THE HON'BLE DRP HAVE ERRED ON FACTS AND IN LAW IN ENHANCING THE ADDITION FROM INR 45,54,546 TO INR 90 ,81,362 WITHOUT PROVIDING ANY PRIOR NOTICE TO THE ASSESSEE IN RELATION TO THE SAID ENHANCEMENT. GROUND 7: CHARGING INTEREST ON DELAYED RECEIPTS OF RECEIVABLES 7.1 WITHOUT PREJUDICE TO THE ABOVE, THE LD. TPOIDR P, BY CHARGING INTEREST ON DELAYED RECEIPTS OF RECEIVABLE S FROM CES LLC, HAVE GROSSLY ERRED BY: - RE-CHARACTERIZING OUTSTANDING RECEIVABLES AS UNSECU RED LOAN ADVANCED TO ASSOCIATED ENTERPRISE ('AE') - APPLYING COMPARABLE UNCONTROLLED PRICE ('CUP') METH OD USING ILLOGICAL AND DISSIMILAR COM PARABLES - IGNORING THE INTERNAL COM PARABLES I.E. ACCOUNT REC EIVABLES OF THE APPELLANT FROM TRANSACTIONS WITH UNRELATED PARTIES AND ACCOUNT RECEIVABLES OF THE AE FOR TRANSACTIONS WITH UNRELAT ED PARTIES AVAILABLE IN THE CONTEXT OF THE OUTSTANDING RECEIVA BLES FROM AE - NOT CONSIDERING ACCOUNT RECEIVABLES AS CLOSELY LINK ED TO THE MAIN TRANSACTION AND FAILING TO UNDERTAKE A TRANSACTION APPROACH - USING DATA COLLECTED BY EXERCISING POWERS U/S 133(6 ) OF THE ACT 7.2 THE LD. TPO/DRP HAVE VITIATED THE PRINCIPLES O F NATURAL JUSTICE BY NOT GIVING COMMENTING/ ADDRESSING THE DE TAILED ANALYSIS AND TECHNICAL ARGUMENTS SUBMITTED BY THE A PPELLANT WITH RESPECT TO THE INTERNAL COM PARABLES I.E. ACCO UNT RECEIVABLES OF THE APPELLANT FROM TRANSACTIONS WITH UNRELATED P ARTIES AND ACCOUNT RECEIVABLES OF THE AE FOR TRANSACTIONS WITH UNRELATED PARTIES AVAILABLE IN THE CONTEXT OF THE OUTSTANDING RECEIVABLES FROM AE & RELYING ON ERRONEOUS FACTORS SUCH AS SAFE HARBOUR RULES WHICH ARE NOT RELEVANT TO DECIDE SUCH ISSUE.. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : CONSULTING ENGINEERING SE RVICES (INDIA) PVT. LTD. (CES), THE TAXPAYER IS INTO PROVING MULTI -DISCIPLINARY SERVICES STARTING FROM FEASIBILITY STUDIES/DPR TO D ETAILED ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 6 DESIGN/ENGINEERING AND PROJECT/CONSTRUCTION MANAGEM ENT IN INFRASTRUCTURE AND OTHER DEVELOPMENT SECTORS. CONS ULTING ENGINEERING SERVICES LLC (CES LLC) (REGISTERED IN T HE SULTANATE OF OMAN) IS A SUBSIDIARY OF THE TAXPAYER. THE TAXP AYER HELD 65% SHARES OF CES LLC. CES LLC PROVIDES CONSULTANCY IN INFRASTRUCTURAL PROJECTS, ARCHITECTURAL PROJECT AND ALSO DOES THE SUPERVISION OF PROJECTS. DURING THE YEAR UNDER ASS ESSMENT, THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS AS UNDER :- NAME OF THE AE WITH WHOM THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED NATURE OF TRANSACTION AMOUNT (INR) CONSULTING ENGINEERING SERVICES LLC, OMAN PROVISION OF CONSULTANCY IN INFRASTRUCTURAL ARCHITECTURAL PROJECT AND SUPERVISION AT VARIOUS SITES IN OMAN AND OTHER SITES IN MIDDLE EAST. 148,573,436 5. ASSESSING OFFICER (AO) BY FOLLOWING THE ASSESSME NT ORDER PASSED IN TAXPAYERS OWN CASE FOR AY 2009-10 CONFIR MED BY THE LD. CIT (A) MADE ADDITION OF RS.27,58,24,845/- ON THE GROUND THAT THE TAXPAYER HAS UNDERVALUED THE CLOSING JOB IN PRO GRESS BY RS.27,58,24,845/- FOR THE YEAR UNDER CONSIDERATION. 6. AO ALSO MADE ADDITION OF RS.5,31,08,347/- ON ACC OUNT OF LOSSES INCURRED ON PRE-2003 OR POST-2003 PROJECT CO MPLETED DURING ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 7 THE CURRENT FINANCIAL YEAR AGAIN BY FOLLOWING ITS O WN ORDER CONFIRMED BY THE LD. CIT (A) FOR AY 2009-10. 7. AO MADE DISALLOWANCE OF RS.6,50,891/- INCURRED B Y THE TAXPAYER ON BEHALF OF ITS SISTER CONCERN U/S 40A (2 )(B) OF THE ACT ON THE GROUND THAT THE SAME IS NOT RELATED TO THE BUSI NESS OF THE TAXPAYER COMPANY. 8. AO ALSO DISALLOWED AN AMOUNT OF RS.4,82,26,872/- BEING THE EXPENSES CLAIMED BY THE TAXPAYER HAVING BEEN INCURR ED IN THE PRIOR PERIOD AGAIN BY FOLLOWING ITS OWN ORDER CONFIRMED B Y THE LD. CIT (A) FOR AY 2009-10. 9. AO ALSO MADE DISALLOWANCE OF RS,8,462/- BEING EX PENSES CLAIMED BY THE TAXPAYER TOWARDS ENTRANCE FEES AND S UBSCRIPTION. 10. LD. TPO IN ORDER TO BENCHMARK DELAY IN RECEIPT OF PAYMENT FOR RECEIVABLES APPLIED COMPARABLE UNCONTROLLED PRI CE (CUP) METHOD BUT DETERMINED THE INTEREST TO BE CHARGED AS THE ARMS LENGTH INTEREST THUS COMPUTED THE INTEREST RATE OF 14.74% PER ANNUM AND THEREBY ENHANCED THE INCOME OF THE TAXPAY ER BY RS.45,54,546/-. 11. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. DRP BY WAY OF FILING OBJECTIONS WHO HAS PARTLY ALLOWED THE SAM E. LD. DRP ENHANCED THE ADDITION OF RS.45,54,546/- TO RS.90,81 ,362/- MADE BY THE TPO ON ACCOUNT OF INTEREST ON DELAYED RECEIPT O N RECEIVABLES ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 8 FROM CES LLC. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE APPEAL. 12. AT THE SAME TIME, LD. DRP ALLOWED THE EXPENSES OF RS.4,82,26,872/- CLAIMED BY THE TAXPAYER INCURRED O N JOBS COMPLETED IN EARLIER YEARS DISALLOWED BY THE AO AND HAS ALLOWED THE DISALLOWANCE OF EXPENSES OF RS.8,462/- CLAIMED TO HAVE BEEN INCURRED BY THE TAXPAYER TOWARDS ENTRANCE FEE AND S UBSCRIPTION, WHICH HAVE BEEN CHALLENGED BY THE REVENUE BY WAY OF FILING THE CROSS APPEAL. 13. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. CORPORATE GROUNDS GROUNDS NO.1 & 2 (ITA NO.1245/DEL/2015) (TAXPAYERS APPEAL) 14. GROUNDS NO.1 & 2 OF ITA NO.1245/DEL/2015 (TAXPA YERS APPEAL) ARE GENERAL IN NATURE, HENCE NEED NO SPECIF IC ADJUDICATION. GROUND NO.3 (ITA NO.1245/DEL/2015) (TAXPAYERS APPEAL) 15. AO/DRP HAVE MADE/CONFIRMED ADDITION OF RS.27,58,24,845/- ON ACCOUNT OF SHORT VALUATION OF CLOSING JOBS IN ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 9 PROGRESS BY ADDING THE SAME TO THE COST INCURRED BY THE TAXPAYER RELATING TO THE WORK PERTAINING TO THE UNBILLED AMO UNT. 16. LD. AR FOR THE TAXPAYER CHALLENGING THE IMPUGNE D ORDER CONTENDED THAT AO/DRP HAVE FAILED TO APPRECIATE THE METHOD OF ACCOUNTING BEING REGULARLY FOLLOWED BY THE TAXPAYER AND HAVE ALSO NOT CONSIDERED THE FACT THAT THE TAXPAYER HAS OFFER ED INCOME ON THE BASIS OF BILLS RAISED DURING THE RELEVANT FINANCIAL YEARS FOR WHICH THE EXPENSES WERE DEBITED TO THE PROFIT & LOSS ACCO UNT IN PRECEDING YEARS AND RELIED UPON THE DECISIONS RENDERED BY HONBLE SUPREME COURT IN CIT VS. EXCEL INDUSTRIES LTD. (CIVIL APPEA L NO.125/2013), HONBLE DELHI HIGH COURT CIT VS. TRIV ENI ENGG. & INDUSTRIES LTD. (2011) 196 TAXMAN 94 (DELHI-HC), AND COORDINATE BENCH OF THE TRIBUNAL IN ACCENTURE INDIA (P) LTD. IN ITA NO.4541/MUM/2008 DATED MARCH 23, 2010 . 17. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE CONTENDED THAT THIS ISSUE IS IDENTICAL TO THE ISSUE BEFORE THE AO AS WELL AS LD. CIT (A) IN AY 2009-10 IN ITA NO.1735/DEL/2014 & 1444/DEL/2014 VIDE ORDER DATED 29.05.2019 WHICH HAS BEEN REMITTED BACK TO THE AO BY THE TRIBUNAL FOR DE NOVO DETERMINATION. 18. WHEN WE EXAMINE ASSESSMENT ORDER PASSED BY THE AO, IT IS OBSERVED THAT THE TAXPAYER HAS MADE EXTENSIVE SUBMI SSIONS BEFORE THE AO WHICH HAVE NOT BEEN EXAMINED BY THE AO TO DE CIDE THE ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 10 ISSUE IN CONTROVERSY. AO RATHER DECIDED THE ISSUE BY FOLLOWING ITS OWN ORDER FOR AY 2009-10 CONFIRMED BY THE LD. CIT ( A) AND THEREBY MADE THIS ADDITION ON ACCOUNT OF UNDERVALUE D THE CLOSING JOB IN PROGRESS. WHEN UNDISPUTEDLY AO WITHOUT APPL YING HIS MIND QUA THE YEAR UNDER ASSESSMENT HAS MADE THE ADDITION BY FOLLOWING ITS OWN ORDER FOR AY 2009-10, WHICH IS NO MORE IN E XISTENCE AS THE ISSUE IN CONTROVERSY HAS BEEN REMITTED BACK TO THE AO FOR DE NOVO ASSESSMENT BY THE TRIBUNAL, IT WOULD NOT BE IN THE INTEREST OF JUSTICE TO DEPRIVE THE AO TO EXAMINE THE SUBMISSIONS NOW MA DE BY THE LD. AR FOR THE TAXPAYER BECAUSE THE FACTS IN ENTIRETY A RE REQUIRED TO BE EXAMINED BY THE AO FIRST AND THEREAFTER BY LD. CIT (A), IF SO REQUIRES. SO, THIS ISSUE IS REMITTED BACK TO THE A O TO DECIDE AFRESH IN THE LIGHT OF THE SUBMISSIONS MADE AND TO BE MADE BY THE TAXPAYER, IF ANY, BY PROVIDING AN OPPORTUNITY OF BE ING HEARD. GROUND NO.3 OF TAXPAYERS APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. GROUND NO.4 (ITA NO.1245/DEL/2015) (TAXPAYERS APPEAL) 19. AO/DRP HAVE DISALLOWED AN AMOUNT OF RS.4,93,79, 643/- AND RS.37,28,704/- BEING LOSS INCURRED ON THE JOBS COMMENCED PRIOR TO 1 ST APRIL, 2003 AND AFTER 1 ST APRIL, 2003 RESPECTIVELY. ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 11 20. LD. AR FOR THE TAXPAYER CONTENDED THAT AO/DRP H AVE NOT CONSIDERED THE FACT THAT TAXPAYER WAS APPLYING COM PLETED CONTRACT METHOD AND HAS ALSO NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THESE LOSSES WERE NOT GENUINE. 21. ON THE OTHER HAND, LD. DR FOR THE REVENUE CONTE NDED THAT THIS ISSUE IS IDENTICAL TO THE ISSUE BEFORE THE AO AS WELL AS LD. CIT(A) IN AY 2009-10 WHICH HAS BEEN REMITTED BACK T O THE AO BY THE TRIBUNAL FOR DE NOVO DETERMINATION. 22. KEEPING IN VIEW THE UNDISPUTED FACT THAT WHILE DECIDING THIS ISSUE ALSO, THE AO HAS NOT APPLIED HIS MIND BY EXAM INING THE EXTENSIVE SUBMISSIONS MADE BY THE TAXPAYER RATHER P ROCEEDED TO MAKE THIS ADDITION BY BLUNTLY FOLLOWING ITS OWN ORD ER PASSED IN AY 2009-10 AND CONFIRMED BY THE LD. CIT (A) IN TAXP AYERS OWN CASE, WHICH IS NO MORE IN EXISTENCE HAVING BEEN SET ASIDE BY THE TRIBUNAL VIDE ORDER (SUPRA) FOR DE NOVO ASSESSMENT, IT WOULD NOT BE IN THE INTEREST OF JUSTICE TO CONSIDER THE ARGUMENT S ADDRESSED BY THE TAXPAYER BEFORE THE TRIBUNAL AS THE SAME ARE REQUIR ED TO BE EXAMINED FIRST BY THE AO BY EXAMINING THE FACTS OF THE CASE AT HAND IN ENTIRETY, OTHERWISE IT WILL CAUSE PREJUDICE TO THE REVENUE WHO HAS MERELY DECIDED THIS ISSUE BY FOLLOWING ITS OWN ORDER FOR AY 2009-10 WHICH IS NO MORE IN EXISTENCE. SO, THIS ISSUE IS ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 12 ALSO REMITTED BACK TO THE AO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. GROUND NO.5 (ITA NO.1245/DEL/2015) (TAXPAYERS APPEAL) 23. AO/DRP HAVE MADE/CONFIRMED DISALLOWANCE OF RS.6,50,891/- CLAIMED BY THE TAXPAYER AS EXPENSES H AVING BEEN INCURRED ON BEHALF OF ITS SISTER CONCERN, NAMELY, M /S. CES TECHNOLOGIES PVT. LTD., U/S 40A(2)(B) OF THE ACT BE ING NOT RELATED TO THE BUSINESS OF THE TAXPAYER COMPANY. 24. LD. AR FOR THE TAXPAYER CHALLENGING THE IMPUGNE D DISALLOWANCE CONTENDED INTER ALIA THAT AO HAS FAILE D TO APPRECIATE THE FACT THAT ONLY AMOUNT OF RS.6,00,000/- WAS PAID TO CES TECHNOLOGIES PVT. LTD. AND REMAINING AMOUNT OF RS.5 0,891/- WAS PAID TO OTHER PERSONS WHO ARE NOT RELATED TO THE TA XPAYER; THAT THE TAXPAYER HAS OBTAINED A PROJECT OF SOIL HEALTH CAR D FROM ANAND AGRICULTURE UNIVERSITY, GOVERNMENT OF GUJARAT IN FY 2004-05 AND THE ESTIMATED FEE FOR THE SAID PROJECT WAS RS.4,06, 63,469/-; THAT OUT OF THE BUSINESS EXPEDIENCY, THE TAXPAYER HAS SUB-CO NTRACTED THE SAID WORK TO CES TECHNOLOGIES PVT. LTD. FOR A FEE O F RS.3,04,97,602/- BEING 75% OF THE TOTAL PROJE CT AMOUNT AS PER LETTER DATED MAY 1, 2007; THAT THE PAYMENT MADE BY THE TAXPAYER TO CES TECHNOLOGIES PVT. LTD. IS NOT EXCESSIVE AS THE SAID CONTRACT FEE ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 13 IS LESS THAN THE MAIN CONTRACT; AND THAT IN AY 2009 -10, AO HAS ALREADY CONSIDERED THE TOTAL SUB-CONTRACTED VALUE F OR COMPUTING THE LOSSES OUT OF THE SAID PROJECT AND IT WOULD LEAD TO DOUBLE TAXATION. WE ARE OF THE CONSIDERED VIEW THAT WHEN SUB-CONTRAC TED VALUE FOR COMPUTING THE LOSSES OUT OF THE SAID PROJECT (SOIL HEALTH CARD) HAS ALREADY BEEN CONSIDERED IN AY 2009-10, THE DISALLOW ANCE OF AFORESAID PAYMENT TO CES TECHNOLOGIES PVT. LTD. WOU LD AMOUNT TO DOUBLE TAXATION. AO IS DIRECTED TO VERIFY THESE FA CTS AND DELETE THE ADDITION ACCORDINGLY. GROUND NO.5 IS DETERMINED IN FAVOUR OF THE TAXPAYER. GROUND NO.1 (ITA NO.1058/DEL/2015) (REVENUES APPEAL) 25. AO REJECTED THE CLAIM OF THE TAXPAYER QUA EXPEN SES OF RS.4,82,26,872/- ON THE GROUND THAT THERE IS NO JOB -WISE DETAILS, VOUCHERS OR OTHER EVIDENCES AND ABSENCE OF METHOD O F RECOGNITION OF REVENUE FOLLOWED BY THE TAXPAYER BY FOLLOWING IT S OWN ORDER FOR AY 2009-10. HOWEVER, LD. DRP TREATED THESE EXPENSE S INCURRED ON THE JOB COMPLETED IN THE EARLIER YEARS. 26. LD. DRP HAS EXAMINED THIS ISSUE AT LENGTH IN PA RA 9.1 TO 9.4.5. DURING THE DRP PROCEEDINGS, A REMAND REPORT WAS CALLED FROM THE AO QUA THE CLAIM OF EXPENDITURE UNDER THE DIRECT EXPENSES AMOUNTING TO RS.2,35,32,318/- AND ACCORDIN GLY, AO ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 14 CONFIRMED THE VOUCHERS EXAMINED BY HIM ON TEST CHEC K BASIS AND HAS NOT MADE ANY ADVERSE COMMENT AND DECIDED THE IS SUE IN FAVOUR OF THE TAXPAYER BY RETURNING FOLLOWING FINDINGS :- THUS, IT IS EVIDENT THAT: (A) SUCH EXPENSE PERTAIN TO NUMEROUS PROJECTS, BOT H PRE 2003 AND- POST 2003, (B) THE DIRECT COMPONENT OF EXPENDITURE IS 'DIRECT EXPENSES' WHICH AGGREGATE TO RS.2,25,32,318/-, (C) THE TAXPAYER HAS MADE ALLOCATION OF PERSONNEL COST UNDER THE HEAD 'DIRECT TIME' WHICH AGGREGATE TO RS.1,07,3 0,890/-, (D) THE TAXPAYER HAS MADE ALLOCATION OF COSTS OTHE R THAN ABOVE UNDER THE HEAD 'INDIRECT TIME' WHICH AGGREGATE TO R S.1,49,61,664/-. THE PANEL WOULD THEREFORE, 'ANALYSE CLAIM UNDER EAC H HEAD. 9.4.2 SO FAR AS THE CLAIM OF EXPENDITURE UNDER 'DI RECT EXPENSES' AGGREGATING TO RS.2,35,32,318/- IS CONCERNED, THE T AXPAYER HAS PRODUCED VOUCHERS RELATING TO THESE BEFORE THE AO A T THE REMAND STAGE AND THE AO HAS AFFIRMED THAT THESE VOUCHERS W ERE EXAMINED BY HIM ON TEST CHECK BASIS. IN THE REMAND REPORT, T HE AO HAS NOT ADVERSELY COMMENTED UPON THESE EXPENSES STATED THEM TO BE, OF NON VERIFIABLE NATURE. AT THE SAME TIME, THE AO HAS NOT STATED CATEGORICALLY THAT HE HAS BEEN ABLE TO VERIFY THE C LAIM OF THE TAXPAYER OF INCURRING OF EXPENDITURE. UNDER THESE FACTS, THE PANEL DIRECTS THE AO TO ALLOW THE CLAIM ON THIS ACCOUNT TO THE EXTENT THESE ARE SAID TO BE NON-VERIFIABLE. IN CASE, THE AO PROPOSES ANY ADD ITION ON ACCOUNT OF NON VERIFIABLE NATURE OF SUCH EXPENSES, HE SHALL RECORD REASONS AS TO HOW SUCH EXPENSES ARE NOT VERIFIABLE OR HOW THE GENUINENESS OF SUCH EXPENSES IS IN DOUBT. THE PANEL ALSO MENTIONS THAT THE ISSUE OF THE EXPEN DITURE OF RS. 6,50,891/- HAS ALREADY BEEN DISCUSSED IN DETAIL VID E GROUND NO.1 AND THEREFORE, THE AO SHALL NOT MAKE ANY SEPARATE ADDIT ION FOR THE CORRESPONDING AMOUNT FOR THE SAID PROJECT. FOR THE SAKE OF CLARITY IT IS MENTIONED THAT THE SAID EXPENDITURE IS APPEARING AS DIRECT EXPENSES IN POST 2003 AMOUNTS ADDED BY THE AO. 9.4.3 SO FAR AS THE EXPENDITURE UNDER THE HEADS 'DI RECT TIME' AND 'INDIRECT TIME' ARE CONCERNED, THE AO IN THE REMAND REPORT HAS STATED THAT THESE ARE NOTHING BUT ALLOCATION OF SAL ARY EXPENSES WHICH HAS BEEN CLAIMED UNDER THE HEAD 'PERSONNEL' EXPENSE S'. THE AR OF THE TAXPAYER HAS EXPLAINED TO THE PANEL THAT SUCH P ERSONAL EXPENSES ARE OTHERWISE ALLOWABLE AS THESE HAVE BEEN INCURRED IN RELATION TO THE BUSINESS OF THE TAXPAYER. THE TAXPAYER HAS ONLY ALL OCATED THESE EXPENSES FOR ASCERTAINING THE PROJECT-WISE LOSS OR INCOME BUT THAT DOES NOT INDICATE THAT SUCH EXPENSES WERE NOT FOR T HE PURPOSES OF THE BUSINESS OF THE TAXPAYER. IT HAS FURTHER SUBMITTED BY THE TAXPAYER THAT FOR AO HAS ALSO NOT DOUBTED VERACITY OF THESE EXPENSES WHILE PASSING THE DRAFT ASSESSMENT ORDER. CONSIDERING THE RELEVANT FACTS OF ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 15 THE CASE, THE PANEL DIRECTS THE AO TO VERIFY THE CL AIM OF THE TAXPAYER THAT. DIRECT TIME AND INDIRECT TIME COST IS NOTHING BUT ALLOCATION OF SALARY EXPENSES CLAIMED UNDER THE HEAD 'PERSONNEL E XPENSES' AND IF HE SO SATISFIED, NO DISALLOWANCE ON THIS ACCOUNT SH ALL BE MADE. HOWEVER, IF THE AO PROPOSES ANY ADDITION ON ACCOUNT OF NOI1 VERIFIABLE NATURE OF SUCH EXPENSES, TIE SHALL RECOR D REASONS AS TO HOW SUCH EXPENSES ARE NOT VERIFIABLE OR HOW THE GENUINE NESS OF SUCH EXPENSES IS IN DOUBT. 27. WE ARE OF THE CONSIDERED VIEW THAT LD. DRP HAS REACHED THE CONCLUSION BY DELETING THE DISALLOWANCE MADE BY TH E AO BEING THE EXPENSES PERTAINING TO NUMEROUS PROJECTS I.E. PRE-2 003 AND POST- 2003 AFTER CALLING REMAND REPORT FROM THE AO. LD. DR FOR THE REVENUE HAS FAILED TO POINT OUT ANY INFIRMITY AND I RREGULARITY IN THE AFORESAID FINDINGS. SO, WE FIND NO PERVERSITY OR IL LEGALITY IN THE DELETION OF DISALLOWANCE MADE BY THE LD. DRP, HENCE GROUND NO.1 OF REVENUES APPEAL IS DETERMINED AGAINST THE REVEN UE. GROUND NO.2 (ITA NO.1058/DEL/2015) (REVENUES APPEAL) 28. LD. DRP DELETED THE DISALLOWANCE OF EXPENSES OF RS.8,462/- CLAIMED BY THE TAXPAYER HAVING BEEN INCURRED TOWARD ENTRANCE FEE AND SUBSCRIPTION BY RETURNING FOLLOWING FINDINGS :- 10.4 THE PANEL HAS EXAMINED TO THE MATTER. IN ANN EXURE TO THE TAX AUDIT REPORT [ITEM NO. 17(D)(I)], THE AUDITORS HAVE INTIMATED THAT RS.8,462/- REPRESENTS AMOUNT DEBITED TO P&L ACCOUNT BEING EXPENDITURE INCURRED AT CLUB AS ENTRANCE FEES AND S UBSCRIPTIONS. THE AUDITOR HAS NOT STATED ANYTHING BEYOND THIS. THUS, THE OBSERVATION OF THE AO THAT SUCH EXPENSES ARE, NOT WHOLLY AND, EXCL USIVELY SPENT FOR THE PURPOSES OF THE BUSINESS IS, NOT ESTABLISHED. T HE AO SHOULD HAVE IDENTIFIED AS TO, HOW THE CLAIM SO MADE IS NOT ALLO WABLE. EVEN IN AY 2009-10, CIT(A) HAS NOT CONFIRMED THE SAID DISALLOW ANCE MADE BY THE AO. IN PARA 5:17 OF HIS ORDER, THE CIT(A) HAS DIREC TED THE AO TO DELETE THE ADDITION WHICH HAS BEEN HELD TO BE EXTENDED BY THE TAXPAYER WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS AN D ALSO BEING IN ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 16 REVENUE DOMAIN. UNDER THESE FACTS AND CIRCUMSTANCES THE PANEL DIRECTS THE AO TO DELETE ADDITION PROPOSED BY HIM ON THIS A CCOUNT. 29. WHEN IN ANNEXURE TO TAX AUDIT REPORT ITEM NO.17 D(1) IT HAS BEEN INTIMATED THAT AMOUNT OF RS.8,462/- IS DEB ITED TO P&L ACCOUNT BEING EXPENDITURE INCURRED AT CLUB ENTRANCE FEE AND SUBSCRIPTION, CAUSAL OBSERVATION MADE BY THE AO THA T SAME ARE NOT WHOLLY AND EXCLUSIVELY SPENT FOR BUSINESS PURPOSE, IS NOT SUSTAINABLE. SO, KEEPING IN VIEW THE MEAGER AMOUNT AND THE FACT THAT THE SAME HAS BEEN INCURRED AS ENTRANCE FEE AND SUBSCRIPTION FOR CLUB HAS BEEN RIGHTLY DELETED BY THE LD. DRP. SO, GROUND NO.2 OF REVENUES APPEAL IS DETERMINED AGAINST THE REVENUE. TRANSFER PRICING GROUNDS (ITA NO.1245/DEL/2015) (TAXPAYERS APPEAL) 30. LD. TPO BY INVOKING THE EXPLANATION TO SECTION 92B SUBJECTED TO DELETE THE PAYMENT RECEIVED BY THE TAX PAYER FROM ITS ASSOCIATED ENTERPRISES (AE) BEYOND 30 DAYS, TRANSFE R PRICING ADJUSTMENT BY USING CUP AND NOT ON THE LIBOR RATE A ND THEREBY APPLIED SBI PLR RATE PLUS 300 BASIS POINT LEADING T O RATE OF 14.88%. 31. LD. DRP HOWEVER ENHANCED THE ADDITION FROM RS.45,54,546/- TO RS.90,81,362/- BY APPLYING SBI RA TE AS ON 30 TH JUNE OF RELEVANT PREVIOUS YEAR PLUS 150 BASIS POIN T WHEN AMOUNT OF RECEIVABLES FROM AE DOES NOT EXCEED RS.50 CRORES AND SBI BASIS ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 17 RATE AS ON 30 TH JUNE OF RELEVANT PREVIOUS YEAR PLUS 300 BASIS POIN T WHEN AMOUNT OF RECEIVABLES FROM AE EXCEEDS RS.50 C RORES. 32. THE GRIEVANCE OF THE TAXPAYER CHALLENGING THE I MPUGNED ADDITION IS THAT THE LD. DRP ENHANCED THE ADDITION WITHOUT ISSUING PRIOR NOTICE TO THE TAXPAYER. LD. AR FOR THE TAXPAY ER ALSO CONTENDED THAT IT IS A FOREIGN LOAN AND IN ALL THE SUBSEQUENT YEARS, THE LD. DRP ACCEPTED LIBOR RATE OF THE TAXPAYER. 33. UNDISPUTEDLY, THE AMENDMENT MADE BY THE FINANCE ACT, 2012 IN SECTION 92B IS PROSPECTIVE IN NATURE HAVING BEEN HELD IN NUMBER OF ORDERS PASSED BY THE TRIBUNAL VIZ. RUSABH DIAMONDS VS. ACIT (2016) 48 ITR (T) 707 (MUMBAI), JINDAL STE EL & POWER LTD. VS. ACIT IN ITA NO.893/DEL/2014 AND DCIT VS. SPENTEX INDUSTRIES IN ITA NO.4954/DEL/2014 . 34. IT IS CONTENDED BY THE LD. AR FOR THE TAXPAYER THAT WHEN TAXPAYER HAS NOT CHARGED ANY INTEREST ON DELAYED PA YMENT ON RECEIVABLES, THERE IS NO QUESTION OF MAKING ADJUSTM ENT FOR INTEREST ON RECEIVABLES FROM AE AND RELIED UPON THE DECISION RENDERED BY COORDINATE BENCH OF THE TRIBUNAL IN ACIT VS. GITANJALI EXPORTS CORPORATION LTD. (2017) 81 TAXMANN.COM 452 (MUMBAI) . 35. FURTHERMORE, WE ARE OF THE CONSIDERED VIEW THAT WHEN LD. DRP HAS ENHANCED ADDITION ON ACCOUNT OF DELAYED PAY MENT ON RECEIVABLE WITHOUT GIVING ANY NOTICE TO THE TAXPAYE R FOR SAID ITA NO.1058/DEL./2015 ITA NO.1245/DEL./2015 18 ENHANCEMENT, THE ADDITION IN QUESTION IS NOT SUSTAI NABLE BEING HIT BY RULE OF NATURAL JUSTICE. SO, IT WOULD BE IN THE INTEREST OF JUSTICE TO REMIT THE CASE BACK TO LD. DRP TO DECIDE AFRESH IN THE LIGHT OF WHAT HAS BEEN DISCUSSED HEREINBEFORE, AFTER PROVIDI NG AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. NEEDLE SS TO SAY THAT LD. DRP IS ALSO DIRECTED TO TAKE INTO ACCOUNT THE RULE OF CONSISTENCY AS THE LIBOR OF THE TAXPAYER HAS BEEN ACCEPTED FOR CHA RGING INTEREST ON DELAYED RECEIPTS OF RECEIVABLES IN THE SUBSEQUEN T YEARS. SO, TRANSFER PRICING ISSUE IS DECIDED IN FAVOUR OF THE TAXPAYER FOR STATISTICAL PURPOSES. 36. RESULTANTLY, THE APPEAL OF THE TAXPAYER BEING I TA NO.1245/DEL/2015 IS ALLOWED FOR STATISTICAL PURPOSE S AND THE APPEAL OF THE REVENUE BEING ITA NO.1058/DEL/2015 IS DISMIS SED. ORDER PRONOUNCED IN OPEN COURT ON THIS 21 ST DAY OF OCTOBER , 2020. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 21 ST DAY OF OCTOBER, 2020/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.DRP 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.