Consulting Engineers Corporation India Branch Office, New Delhi V. ADIT, New Delhi

ITA 1613/DEL/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7466 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR SHARMA SENIOR
• Assessee Lawyers: LALITHA KRISHNAMURTHY; M P RASTOGI S
• Keywords: Transfer pricing; Double taxation relief; International transaction
• Section: 92C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH B BB B : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND S SS SHRI SUDHANSHU SRIVASTAVA HRI SUDHANSHU SRIVASTAVA HRI SUDHANSHU SRIVASTAVA HRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 1613/DEL/2011 1613/DEL/2011 1613/DEL/2011 1613/DEL/2011 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2006 2006 2006 2006 - -- - 07 0707 07 M/S CONSULTING ENGINEERS M/S CONSULTING ENGINEERS M/S CONSULTING ENGINEERS M/S CONSULTING ENGINEERS CORPORATION INDIA BRANC CORPORATION INDIA BRANC CORPORATION INDIA BRANC CORPORATION INDIA BRANCH H H H OFFICE, OFFICE, OFFICE, OFFICE, D DD D- -- -6, PAMPOSH ENCLAVE, 6, PAMPOSH ENCLAVE, 6, PAMPOSH ENCLAVE, 6, PAMPOSH ENCLAVE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 048. 110 048. 110 048. 110 048. PAN : AAAAC1196J. PAN : AAAAC1196J. PAN : AAAAC1196J. PAN : AAAAC1196J. VS. VS. VS. VS. ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(1), INTERNATIONAL TAXATION, 1(1), INTERNATIONAL TAXATION, 1(1), INTERNATIONAL TAXATION, 1(1), INTERNATIONAL TAXATION, DRUM SHAPE BUILDING, DRUM SHAPE BUILDING, DRUM SHAPE BUILDING, DRUM SHAPE BUILDING, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. LALITHA KRISHNAMU RTHY AND SHRI M.P. RASTOGI, ADVOCATES. RESPONDENT BY : SHRI ANIL KUMAR SHARMA, SENIOR DR. DATE OF HEARING : 27.07.2016 27.07.2016 27.07.2016 27.07.2016 DATE OF PRONOUNCEMENT : 08.08.2016 08.08.2016 08.08.2016 08.08.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-0 7 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XI, NE W DELHI DATED 6 TH JANUARY, 2011. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE LD.CIT(APPEALS) HAS FAILED TO PROVIDE A REASONABLE OPPORTUNITY TO THE APPELLANT BY NOT KEEPI NG THE PROCEEDING IN ABEYANCE, AS SOUGHT FOR, EVEN WITHOUT A NY DISMISSAL OF THE REQUEST. 2. THAT IN THE ABSENCE OF ANY PE IN INDIA IN TERMS OF DTAA (DOUBLE TAXATION AVOIDANCE AGREEMENT), NO PROF ITS ALLEGED TO HAVE ACCRUED TO THE APPELLANT ARE THERE AND ITA-1613/DEL/2011 2 CONSEQUENTLY THE LEVY OF TAX AS MADE BY THE AO IS ARBITRARY, UNJUST AND BAD IN LAW. 3. THAT THE APPELLANT FUNCTIONS AS A BRANCH OF THE US NONRESIDENT INVOLVING ONLY IN PREPARATORY AND AUXILI ARY ACTIVITIES FOR US NONRESIDENT THE COST WHEREOF IS REIMBURSED BY US HENCE THERE COULD BE NO INCOME ACCR UED TO THE APPELLANT AND CONSEQUENTLY THE ASSUMPTION OF INCOME AT RS.33,63,300/- IS ARBITRARY, UNJUST AND BAD IN LAW AS THIS IS FAR FROM REALITY. EVEN IN US WHERE THE FIR M HAS ITS HO AND IS BASED, EVEN THEY ARE NOT MAKING EVEN A PART OF THIS PROFIT %. HOW CAN A BRANCH WHO IS SIMPLY DOING A SMALL PORTION OF THE JOB SUCH AS DRAFTING AND ENGINEER ING CAN BE DEEMED AS MAKING SO HIGH % OF PROFIT, WHEN THE MOST OF THE CRUCIAL JOB OF THE PROJECT LIES WITH THE HO, INCLUDING THE LIABILITIES OF THE DESIGN IF THE BUILDI NG FAILS AT ANY GIVEN TIME. 4. THAT IN THE ABSENCE OF ANY INCOME EMBEDDED IN THE AMOUNT REIMBURSED BY US NONRESIDENT TO ITS BRANCH (APPELLANT), ACTING AS A PURE A COST CENTRE THE ASSESSME NT AT A FIGURE OF RS.33,63,300/- IS BAD IN LAW. CEC IS A FIRM AND NOT A COMPANY EVEN IN US. IT IS 100% OWNED BY SINGLE INDIVIDUAL HENCE DOES NOT FALL IN THE CATEGORY OF A COMPANY. 5. THAT THERE IS NO INTERNATIONAL TRANSACTION WITH AN ASSOCIATED ENTERPRISE (AE) AS CONTEMPLATED UNDER SECTIO N 92C OF THE INCOME TAX ACT, 1961 HENCE NO INCOME OUG HT TO HAVE BEEN DEEMED UNDER SECTION 92C OF THE INCOME TA X ACT, 1961. 6. THAT THE PROVISIONS OF SECTION 92C IN TERMS ARE NO T APPLICABLE AND CONSEQUENTLY THE ASSESSMENT MADE AT RS.33,63,300/- AS MADE BY THE AO IS ARBITRARY, UNJUST A ND AT ANY RATE VERY EXCESSIVE. 7. WITHOUT PREJUDICE TO ABOVE GROUNDS : (I) THAT THE CIT(APPEALS) HAS NOT GIVEN ANY VALID REA SON TO UPHOLD THE ADDITION MADE BY THE AO. (II) THAT IN THE ABSENCE OF ANY COMPARABLES BROUGHT O N RECORD EITHER BY THE AO OR BY CIT(APPEALS) THE ADDIT ION OF RS.17,98,320 AS SUSTAINED BY CIT(APPEALS) IS ARBITRARY, WITHOUT ANY BASIS AND BAD IN LAW. ITA-1613/DEL/2011 3 (III) THAT THE AO AND CIT(APPEALS) HAVE NOT GIVEN AN Y VALID REASON IN ADOPTING THE MARKUP RATE @ 10% INSTEA D OF THE GLOBAL RATE @5.33% AS PER US TAX RETURN FOR CALE NDAR YEAR 2005 AS DONE BY AO IN EARLIER YEARS. (IV) THAT THE AO AND THE CIT(APPEALS) BOTH, AFTER WO RKING OUT THE PROFIT ATTRIBUTABLE, IF ANY TO THE BRANCH I N INDIA OUGHT TO HAVE FURTHER ALLOWED MARGIN FOR FUNCTIONS PERFORMED, ASSETS EMPLOYED, WORKING CAPITAL AVAILABLE AND RISKS ASSUMED AND CONSEQUENTLY THE ADOPTION OF A MARKUP RATE OF 10% IS VERY HIGH. 8. THAT THE AUTHORITIES OUGHT TO HAVE ADOPTED THE STATUS OF THE APPELLANT AS INDIVIDUAL INSTEAD OF FOREIG N COMPANY. 9. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED B Y THE LEARNED COUNSEL THAT THE APPEAL OF THE ASSESSEE IS SQUARELY COVER ED BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 AND 2004-05 VIDE ITA NO.1597 & 1598/DEL/2009. HE ST ATED THAT THE ITAT HAS NOT ACCEPTED THE ASSESSEES CONTENTION THAT THE RE IS NO PE IN INDIA. THE ITAT HAS GIVEN THE DIRECTION HOW THE PRO FIT IS TO BE ATTRIBUTED TO THE PE IN INDIA. HE, THEREFORE, SUBMI TTED THAT FOR THE YEAR UNDER CONSIDERATION ALSO, THE INCOME MAY BE COMPUTED AS PER THE DIRECTION OF THE ITAT IN EARLIER YEARS. 4. LEARNED DR HAS NO OBJECTION TO THE ABOVE SUBMISSION OF THE ASSESSEE AND HE STATED THAT THE MATTER MAY BE SENT BACK T O THE FILE OF THE ASSESSING OFFICER FOR COMPUTING THE INCOME AS PER TH E DIRECTION OF THE ITAT FOR ASSESSMENT YEAR 2003-04 & 2004-05. 5. IN VIEW OF THE ABOVE SUBMISSION OF BOTH THE PARTIES, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW IN RESPECT OF THE ISSUES RAISED BEFORE US ITA-1613/DEL/2011 4 AND DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE INCO ME OF THE ASSESSEE IN THE LIGHT OF THE DECISION OF ITAT IN ASSESSEES O WN CASE FOR ASSESSMENT YEAR 2003-04 & 2004-05 (SUPRA). 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DEEMED T O BE PARTLY ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 08.08.2016. SD/- SD/- (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. COPY FORWARDED TO: - 1. APPELLANT : M/S CONSULTING ENGINEERS CORPORATIO N M/S CONSULTING ENGINEERS CORPORATION M/S CONSULTING ENGINEERS CORPORATION M/S CONSULTING ENGINEERS CORPORATION INDIA BRANCH OFFICE, D INDIA BRANCH OFFICE, D INDIA BRANCH OFFICE, D INDIA BRANCH OFFICE, D- -- -6, PAMPOSH ENCLAVE, 6, PAMPOSH ENCLAVE, 6, PAMPOSH ENCLAVE, 6, PAMPOSH ENCLAVE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 048. 110 048. 110 048. 110 048. 2. RESPONDENT : ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(1), INTERNATIONAL TAXATION, 1(1), INTERNATIONAL TAXATION, 1(1), INTERNATIONAL TAXATION, 1(1), INTERNATIONAL TAXATION, DRUM SHAPE BUILDING, NEW DELHI. DRUM SHAPE BUILDING, NEW DELHI. DRUM SHAPE BUILDING, NEW DELHI. DRUM SHAPE BUILDING, NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR