Linde Engineering India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1526/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3186 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANURAG SHARMA
• Keywords: Related party transaction; Transfer pricing; International transaction; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DLEHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 5026/DEL/2017 ASSESSMENT YEARS: 2009-10 LINDE ENGINEERING INDIA PRIVATE ACIT, LIMITED CIRCLE-15 (2), 806, MAGHDOOT, NEW DELHI. 94, NEHRU PLACE, VS. NEW DELHI 110019 PAN : AAACL0084E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. AJIT KUMAR JAIN, CA SH. SIDDESH CHAUGHLE, ADV. RESPONDENT BY: SH. ANURAG SHARMA, SR. DR DATE OF HEARING: 15/6/2021 DATE OF ORDER : 15/6/2021 ORDER PER K. NARASIMHA CHARY, J.M. AGGRIEVED BY THE ORDER DATED 1/9/2016 PASSED IN APP EAL NO. 6/2013-14/CIT(A)-44 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-44, NEW DELHI (LD. CIT(A)), IN THE CASE OF M/S LINDE ENGINEERING INDIA PRIVATE LIMITED(THE ASSESSEE), FOR THE ASSESSMENT YEAR 2009-10, ASSESSEE PREFERRED THIS APPEAL ON SEVERAL GROUNDS, BUT EFFECTIVELY CHALLENGING THE INCLUSION OF THE ENTITY SKIL INFRASTRUCTURE LTDON THE GROUND THAT IT DOES NOT PASS THROUGH THE RELATED PARTY TRANSACTION (RPT) FILTER. 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S A WORLDWIDE REPUTATION AS A MANUFACTURER OF INDUSTRIAL EQUIPMEN T AND PROCESS PLANT AS WELL AS PROCEDURE OF INDUSTRIAL GASES; THAT AS P ER THE TP REPORT, THE ASSESSEE HAD PROVIDED PERSONNEL TO RENDER DESIGN EN GINEERING SERVICES AT SITES DEFINED AS EOU SEGMENT, NAMELY, ENGINEERING A ND TECHNICAL CONSULTANCY SEGMENT; THAT THE AUDIT REPORT OF THE A SSESSEE STATES THAT THE BUSINESS OF THE ASSESSEE IS A CHEMICAL ENGINEER ING AND PLANT CONSTRUCTION; THAT AS PER THE TP STUDY, THE ASSESSE E HAS EXPERTISE IN PLANNING PROJECT MANAGEMENT AND CONSTRUCTION OF ETE RNITY PLANTS; AND THAT IT HAS COMPETENCE IN THE CONSTRUCTION OF CORIO ZENECA PHARMACEUTICALS AND ENVIRONMENTAL PLANTS THAT PROVI DE IT WITH THE EXCELLENT GROWTH PROSPECTORS. 3. IN THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSEE ENTERED INTO CERTAIN INTERNATIONAL TRANSAC TIONS, NAMELY, PURCHASE OF MATERIALS FROM THE AE, SALE OF MATERIAL S TO AE, RENDERING OF SERVICES TO THE AE, SERVICES RECEIVED FROM THE AE, REIMBURSEMENT OF EXPENSES RECEIVED AND REIMBURSEMENT OF EXPENSES PAI D. ASSESSEE APPLIED TNMM AS THE MOST APPROPRIATE METHOD WITH TH E OP/OC AS PLI TO BENCHMARK THE INTERNATIONAL TRANSACTIONS AND REACHE D THE MARGIN AT 23%. ASSESSEE SELECTED SIX COMPARABLES AND AVERAGE MARGIN OF COMPARABLES WAS COMPUTED AT 20% AND, THEREFORE, HEL D THAT THE INTERNATIONAL TRANSACTIONS OF EOU SEGMENT IS AT THE ARMS-LENGTH. 4. THE ENTITIES SELECTED BY THE ASSESSEE ARE ARTEFA CTS PROJECTS LIMITED, HARRISMAA CONSULTANTS LTD, KIRLOSKAR CONSU LTANTS LTD, L&T VADEL ENGINEERS PVT. LTD, MAHINDRA CONSULTING ENGINEERS P VT. LTD AND WAPCOS LTD. LD. TRANSFER PRICING OFFICER (LD. TPO) HOWEVER , WHILE APPLYING THE 3 FILTER OF 25% RPT AND TURNOVER LESS THAN ONE CRORE 75% INCOME LESS THAN SERVICE INCOME AND PICKUP ONLY M/S KIRLOSKAR CONSUL TANTS LTD AND M/S MAHINDRA PRIVATE LIMITED AND REJECTED THE OTHER FOU R ENTITIES. LD. TPO, AT THE SAME TIME, PICKED UP THREE COMPARABLES AS GOOD COMPARABLES OUT OF THE ACCEPT AND REJECT MATRIX AS PER THE SEARCH UNDE RTAKEN BY THE ASSESSEE IN THE TP STUDY, AND INCLUDED HSCC (INDIA) LTD, SKIL INFRASTRUCTURE LTD, AND TCE CONSULTING ENGINEERS LTD TO CALCULATE THE AVERAGE MARGIN AT 45.22 PERCENT AND PROPOSED AN ADDITION OF RS. 3, 78 , 94, 928/-ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 5. ASSESSEE CHALLENGED THE FUNCTIONAL PROFILE OF TH E COMPANIES INCLUDED BY THE LD. TPO BEFORE THE LD. CIT(A) BUT C OULD NOT SUCCEED IN APPEAL ON THIS ASPECT. ASSESSEE, THEREFORE, PREFERR ED THIS APPEAL BEFORE US AGGRIEVED BY THE INCLUSION OF SKIL INFRASTRUCTUR E LTD ON SEVERAL GROUNDS, BUT CONFINED, DURING THE ARGUMENTS, TO THE EXTENT O F ASSAILING IT ON THE GROUND OF IT AND NOT FITTING IN RPT FILTER CRITERIA . 6. IT IS SUBMITTED BY THE LD. AR THAT AT THE TIME OF ASSESSMENT AS WELL AS THE FIRST APPELLATE PROCEEDINGS, THE FINANCIALS OF THE COMPANY SKIL INFRASTRUCTURE LTD WERE NOT AVAILABLE AND THAT IS THE REASON WHY THE ASSESSEE WAS NOT IN A POSITION TO CHALLENGE THE NON -COMPARABILITY OF THIS ENTITY WITH THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE AND THE LD. TPO WERE ON THE SAME PAGE INSOFAR AS THE RPT FI LTER IS CONCERNED AT 25%, AND SUCH A FACT IS TO BE FOUND FROM THE IMPUGN ED ORDER ALSO AT PAGE NO. 4 WHERE THE LD. CIT(A) CLEARLY NOTED THAT THE F ILTER OF 25% RPT WAS APPLIED, AND AS A MATTER OF FACT THE ENTITY ARTEFAC TS PROJECTS LIMITED SELECTED BY THE ASSESSEE WAS REJECTED BY THE LD. TP O ON THIS GROUND. LD. AR, THEREFORE, PRAYED THAT FOR NOT PASSING THROUGH THE RPT FILTER, THE 4 ENTITY SKIL INFRASTRUCTURE LTD HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACT IONS. 7. PER CONTRA, LD. DR SUBMITTED THAT IT IS A FACT T HAT THE ASSESSEE DID NOT AGITATE THE NON-SUITABILITY OF THIS PARTICULAR ENTITY TO BE COMPARED AGAINST THE ASSESSEE EITHER BEFORE THE LD. TPO OR B EFORE THE LD. CIT(A) AND THEREFORE, THE AUTHORITIES BELOW HAD NO OPPORTU NITY TO LOOK AT THIS ASPECT. HE SUBMITTED THAT IT IS A QUESTION OF FACT TO BE VERIFIED BY THE COMPETENT AUTHORITIES. HE, HOWEVER, FAIRLY CONCEDED THAT IF IT IS FOUND THAT THIS PARTICULAR ENTITY IS NOT SUITABLE FOR COM PARISON WITH THE ASSESSEE, THE LD. TPO WILL TAKE A CALL ON THIS ASPE CT. HE, THEREFORE, PRAYED THAT AN OPPORTUNITY SHOULD BE GRANTED TO THE LD. TP O TO VERIFY THE SUITABILITY OF THIS ENTITY FOR COMPARISON WITH THE ASSESSEE BEFORE DELETING THE SAME. 8. LD. AR, FAIRLY CONCEDED THE REQUEST OF THE LD. D R AND SUBMITTED THAT HE IS NO OBJECTION IF THE MATTER IS REMANDED T O THE FILE OF THE LEARNED ASSESSING OFFICER/LD. TPO FOR VERIFICATION AS TO WH ETHER THIS PARTICULAR ENTITY PASSES THROUGH THE RPT FILTER OR NOT. 9. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. IT IS AN ADMITTED FACT THAT TH ERE IS NO DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE AS TO THE APPL ICABILITY OF 25% RPT FILTER. BY DRAWING OUR ATTENTION TO PAGE NO. 85 OF THE PAPER BOOK, LD. AR DEMONSTRATED THAT THE ENTITY SKIL INFRASTRUCTURE L TD IS A 62.93%. REVENUE DESIRES ONLY THE VERIFICATION OF THIS FACT AT THE END OF THE LD. TPO FOR WHICH THE ASSESSEE HAS NO OBJECTION. SINCE THE REVENUE FAIRLY CONCEDES THAT SUCH VERIFICATION HAS A BEARING ON TH E RETRAINING OR DELETING 5 THIS ENTITY FROM THE LIST OF THE COMPARABLES AND CO NSEQUENTLY ON THE TRANSFER PRICING ADJUSTMENT, WE FIND THAT, IN ORDER TO DETERMINE THE JUST TAX LIABILITY OF THE ASSESSEE, IT IS IMPERATIVE THA T THIS FACT NEEDS TO BE VERIFIED BY THE LD. TPO. 10. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND WHILE ACCEPTING THE REQUEST OF THE REVENUE, REMAND ISSUE TO THE FIL E OF THE LEARNED ASSESSING OFFICER/LD. TPO FOR VERIFICATION OF THE S UITABILITY OF THE ENTITY SKIL INFRASTRUCTURE LTD FOR COMPARISON WITH THE A SSESSEE ON THE ASPECT OF RPT FILTER. ASSESSEE IS FREE TO SUBMIT ALL THEIR CONTENTIONS BEFORE THE LEARNED ASSESSING OFFICER/ LD. TPO AND THE LEARNED ASSESSING OFFICER/LD. TPO IS FREE TO TAKE A FRESH VIEW ON THIS ASPECT. 11. APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED F OR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT IMMEDIATELY AFTER THE CONCLUSION OF HEARING OR VIRTUAL MODE ON THIS THE 15 TH DAY OF JUNE, 2021. SD/- SD/- (ANIL CHATURVEDI) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/6/2021