M/s IWM Constructiions Pvt.Ltd., Secunderabad V. ACIT, Hyderabad

ITA 1658/HYD/2008

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6312 (ITAT-HYDERABAD)
• Duration Of Justice: 7 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-04-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 14-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SRI KUMAR
• Keywords: Business income; Transfer pricing; Double taxation relief; International transaction; Tangible material; Commercial expediency; Sham transactions
• Section: 92D; 92E

Judgement Text

ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 1 OF 22 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS.457/HYD/2007 & 1658/HYD/2008 (ASSESSMENT YEAR: 2003-04) M/S. IWM CONSTRUCTIONS (P) LTD, HYDERABAD PAN: AAACI 8728 C VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) RANGE-2, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI M.P. LOHIA FOR REVENUE : SHRI J. SRI KUMAR, DR DATE OF HEARING : 21.04.2016 DATE OF PRONOUNCEMENT : 20 .0 7 .2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH THE ABOVE APPEALS ARE FILED BY THE ASSESSEE FO R THE A.Y 2003-04. ITA NO.457/HYD/2007 IS AGAINST THE ORDER O F THE CIT (A) IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT P ROPOSED BY THE AO, WHILE ITA NO.1658/HYD/2008 IS AGAINST THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. ITA NO.457/HYD/2007 2. IN THIS APPEAL, THE ASSESSEE HAS FILED REVISED A ND CONCISE GROUNDS OF APPEAL WHICH ARE AS UNDER: TREATING THE TRANSACTION FOR OBTAINING TECHNICAL SERVICES AS SHAM IN NATURE 1.1. ERRED IN TERMING THE PAYMENT MADE TOWARDS TECHNICAL SERVICES BY THE APPELLANT AS A SHAM TRANSACTION AND DISALLOWING THE TECHNICAL AND CONSULTANCY FEE OF RS. 7,50,00,000; ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 2 OF 22 1.2. ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT IS AN EPC CONTRACTOR WHO REQUIRES TECHNICAL KNOWLEDGE IN THE NATURE OF DESIGN, PLANS ETC. BENEFIT TEST 1.3. ERRED IN NOT APPRECIATING THE FACT THAT SUBSTANTIAL EVIDENCE WAS PRODUCED BY THE APPELLANT FOR THE TECHNICAL CONSULTANCY SERVICES RECEIVED BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISES WHICH CAN BE SUBSTANTIATED THROUGH EMAIL CORRESPONDENCE AND TELECONFERENCES AND THROUGH WORD OF MOUTH AT THE TIME OF VISIT OF THE TECHNICAL PERSONNEL; 1.4. ERRED IN NOT APPRECIATING THE FACT THAT THE BENEFIT DERIVED FROM THE PAYMENT OF TECHNICAL SERVI CE FEES HAS BEEN ADEQUATELY DOCUMENTED IN THE TRANSFER PRICING DOCUMENTATION PREPARED UNDER SECTION 92D READ WITH RULE 10D AND THE METHOD ADOPTED BY THE APPELLANT FOR DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT ARE AS P ER TRANSFER PRICING REGULATIONS; 1.5. ERRED IN NOT APPRECIATING THE FACT THAT SERVIC ES IN NATURE OF TECHNICAL CONSULTANCY CANNOT BE VALUED FROM THE VOLUME OF DOCUMENTATION; REJECTION OF DOCUMENTS TO PROVE BENEFIT TEST ON AD- HOC BASIS 1.6. ERRED IN UPHOLDING THAT EVIDENCE SUBMITTED BY THE APPELLANT FOR THE TECHNICAL SERVICES AS BEING I N NATURE OF 'GENERAL GUIDANCE MATERIAL' THAT CAN BE MADE AVAILABLE ANYWHERE AND PREPARED BY ANY TECHNICALLY SKILLED PERSONNEL OF THE APPELLANT AND NOT BY THE TECHNICAL PERSONNEL OF THE APPELLANT'S A.ES; OTHER INCORRECT OBSERVATION OR CONCLUSION 1.7. ERRED IN TERMING THAT THE APPELLANT'S ROLE IN THE CONSTRUCTION OF THE PROJECT WAS LIMITED TO GETTING THE ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 3 OF 22 CONTRACT FROM SWARNA TOLLWAY PRIVATE LIMITED AND GIVING SUB-CONTRACT TO MADHUCON PROJECTS LIMITED AND THAT THE A.ES HAVE SIPHONED OFF THE PROFITS ATTRIBUTABLE TO THE APPELLANT WITHOUT PAYMENT OF TAXES; 1.8. ERRED IN NOT APPRECIATING THE FACT THAT THE INDEPENDENT CONSULTANTS APPOINTED BY SWARNA AND NHAI ARE FOR MONITORING AND SUPERVISING THE PROJECT AND NOT TO PROVIDE ANY TECHNICAL SERVICES TO THE APPELLANT; NO METHOD APPLIED FOR BENCHMARKING INTERNATIONAL TRANSACTION 1.9. ERRED IN HOLDING THAT THE LEARNED TRANSFER PRICING OFFICER (TPO') HAS MADE THE DETAILED ANALYS IS OF THE RELEVANT AGREEMENTS AND OTHER DETAILS FILED BY THE APPELLANT BEFORE CONCLUDING THAT THE TRANSACTIO NS ARE SHAM TRANSACTIONS AND NO VALUE COULD BE ASSIGNED TO THEM; 1.10. ERRED IN TERMING THAT NO METHOD CAN BE APPLIE D FOR THE DETERMINATION OF THE ARM'S LENGTH NATURE OF TRANSACTION AS THE TRANSACTION IS NOT A GENUINE TRANSACTION 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WAS INCORPORATED ON 26.07.2001 WITH ITS SHARES BEING HE LD BY THE WCT (OFFSHORE) PVT. LTD, MAURITIUS AND INTERNATIONA L MTD CAP (MAURITIUS) LTD, MAURITIUS IN THE RATIO OF 61.90% A ND 38.10% RESPECTIVELY. THE OBJECT OF THE ASSESSEE COMPANY IS TO UNDERTAKE BUSINESS OF CONSTRUCTION OF HIGHWAYS AND ROADS. THE ASSESSEE IS REPORTEDLY PART OF THE GROUP WHICH HAS WORLD-WIDE A CCEPTANCE IN EXECUTION OF CONSTRUCTION PROJECTS. ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 4 OF 22 4. A COMPANY, BY NAME CIDB INVENTURES BHD OF SUITE 15-3, 15 TH FLOOR, WLSMA UOA II. NO.21 , JALAN PINANG 50450 KU ALA LUMPUR. MALAYSIA, HAD ENTERED INTO AN AGREEMENT ON 27.03.2001 WITH NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) TO , INTER ALIA, DESIGN, ENGINEER, FINANCE, PROCURE, CONSTRUCT, OPER ATE AND MAINTAIN ON BOT BASIS FOR (A) THE WIDENING AND -REH ABILITATION OF THE EXISTING 2-LANE HIGHWAY FROM KM 52.8 TO KM 163. 6 ON THE TADA-NELLORE SECTION OF THE NATIONAL HIGHWAY NO.5 { 'NH-5') IN ANDHRA PRADESH; AND (B) THE WIDENING AND REHABILITA TION OF THE EXISTING 2-LANE HIGHWAY FROM KM 217 TO KM 252 ON TH E NANDIGAMA-IBRAHIMPATNAM SECTION AND THE UPGRADING A ND IMPROVEMENT OF THE EXISTING 4-LANE HIGHWAY FROM KM 253 TO KM 265 ON THE IBRAHIMPATNAM TO VIJAYAWADA SECTION OF T HE NATIONAL HIGHWAY NO.9 (RNH-9') IN ANDHRA PRADESH (THE CONCE SSION AGREEMENT). 5. ANOTHER COMPANY BY NAME SWARNA TOLLWAY PVT. LTD. , HAD ENTERED INTO AN AGREEMENT ON 29.06.2001 WITH CIDB I NVENTURES INVENTURE SDN BHD AND NATIONAL HIGHWAYS AUTHORITY O F INDIA (ASSIGNMENT AGREEMENT) TO ASSIGN AND TRANSFER THE A BOVE MENTIONED AGREEMENT IN FAVOUR OF THE SWAMA TOLIWAY- PVT. LTD. THE COMPANY, SWAMA TOLLWAY PVT. LTD., IN TURN ENTER ED INTO AN AGREEMENT WITH THE ASSESSEE-COMPANY, M/S. I.W.M. CONSTRUCTIONS PVT. LTD, (CALLED AS CONTRACT AGREEME NT) FOR 'EXECUTION OF THE WORKS KNOWN AS DESIGN, ENGINEERIN G, CONSTRUCTION AND COMPLETION OF THE WIDENING -AND RE HABILITATION OF THE EXISTING 2-LANE HIGHWAY FROM' KM 54.383 TO K M 111.600 (DESIGNED CHAINAGES) ON THE TADA - NELLORE SECTION OF THE' NATIONAL HIGHWAY NO.5 .('NH-5 (SOUTH)') IN ANDHRA P RADESH, INDIA (AND WHICH FORMS PART OF THE EMPLOYERS OBLIGA TIONS UNDER ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 5 OF 22 THE CONCESSION AGREEMENT) SHOULD BE EXECUTED BY THE CONTRACTOR, AND HAS ACCEPTED AN OFFER FROM THE CONTRACTOR FOR T HE EXECUTION AND COMPLETION OF THESE WORKS AND THE REMEDYING OF ANY DEFECTS THEREIN. THE LUMP-SUM CONTRACT PRICE WAS RS.216 CRO RES AND THE EMPLOYER COVENANTS TO PAY THE CONTRACTOR IN CONSIDE RATION OF THE 'DESIGN, EXECUTION AND COMPLETION OF THE WORKS AND THE REMEDYING OF DEFECTS THEREIN, THE FINAL CONTRACT PR ICE AT THE TIMES AND IN THE MANNER PRESCRIBED BY THE CONTRACT. IN AD DITION, THE EMPLOYER M/S. SWAMA TOLLWAY PVT. LTD. SHALL SUPPLY, MATERIAL WHICH ARE, NECESSARY FOR THE WORKS SUBJECT TO THE T OTAL COMBINED COSTS OF MATERIALS NOT EXCEEDING RS.30.00 CRORES. 6. THE ASSESSEE-COMPANY, AFTER OBTAINING THE CONTRA CT, HAS SUB-CONTRACTED THE ENTIRE WORK TO M/S. MADHUCOM BIN APURI J.V. AS PER THE TERMS OF CONTRACT, THE COMPANY WILL SUPP LY ONLY CERTAIN MATERIALS LIKE CEMENT, STEEL AND BITUMEN RE CEIVED FROM THE CUSTOMER, SWARNA TOLLWAY PRIVATE LTD TO THE SUB -CONTRACTOR FOR A TOTAL AMOUNT OF RS30,00,00,000. ALL OTHER MAT ERIALS/ ADDITIONAL MATERIALS SHALL BE PROCURED AND UTILIZED BY THE SUB CONTRACTOR ON HIS OWN ACCOUNT. HENCE, IN ADDITION T O THE MATERIAL SUPPLIED BY THE COMPANY, SIGNIFICANT AMOUNT OF OTHE R MATERIALS ARE ALSO USED BY THE SUB CONTRACTOR FOR THE PROJECT . 7. FROM THE SUB-CONTRACT AGREEMENT, AO OBSERVED THA T THE ENTIRE WORK WAS GIVEN TO M/S MADHUCON BINAPURI JV F OR A LUMP SUM AMOUNT OF RS.161,86,00,000 AND ALSO THAT ULTIMA TELY THE WORK WAS EXECUTED BY M/S MADHUCON PROJECTS PVT LTD WHICH IS ONE OF THE CONSTITUENT MEMBER OF THE JOINT VENTURE M/S. MADHUCOM BINAPURI JV. HE ALSO OBSERVED THAT FROM OU T OF THE ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 6 OF 22 WORKS RECEIVED FROM SWARNA TOLLWAY PVT LTD, THE ASS ESSEE COMPANY HAS SHOWN AN AMOUNT OF RS.129,67,19,717 AS CONTRACT RECEIPTS DURING THE YEAR ENDING ON 31.03.2003 AND SIMULTANEOUSLY DEBITED AN AMOUNT OF RS.84,86,64,708 BEING THE CONTRACT WORK SUB-CONTRACTED TO MADHUCOM BINAPURI J V. 8. HE ALSO OBSERVED THAT THE ASSESSEE HAD ENTERED I NTO AN AGREEMENT WITH ITS ASSOCIATED ENTERPRISES (AES) ON 3.12.2001, NAMELY WCT CONSTRUCTIONS SDN. BERHARD (HEREINAFTER REFERRED TO AS WCT) AND MTD CONSTRUCTIONS SADN. BERHAD (HEREINA FTER REFERRED TO AS MTD) AND ENGAGED THEM AS JT. PROJECT ADVISORS AND THAT THE ASSESSEE HAD ALSO DEBITED AN AMOUNT OF RS.7,50,00,000 AS INCURRED TOWARDS TECHNICAL & SUPP ORT SERVICES FEES PAID TO WCT CONSTRUCTION SDN. BERHAD AND RS.1,00,90,259 TO MTD CONSTRUCTION ADN. BERHAD TOWA RDS SALARIES AND WAGES TO THE PERSONNEL OF THE ABOVE TW O COMPANIES. AS PER THE AGREEMENT, THE SERVICES TO BE PROVIDED B Y THE JT. PROJECT ADVISORS INVOLVE THE FOLLOWING: I) PROJECT MANAGEMENT SERVICES; II) DESIGN AND TECHNICAL SERVICES; III) BUDGET AND TENDER SERVICES; IV) CONTRACT AND LEGAL SERVICES; V) HUMAN RESOURCES SERVICES; AND VI) FINANCIAL AND MANAGEMENT ACCOUNTING SUPPORT. 9. THE ASSESSEE CLAIMED AN EXPENDITURE OF RS.7.5 CR ORES TOWARDS THE ABOVE TECHNICAL AND OTHER SUPPORT SERVI CES AS PER THE TERMS OF THE AGREEMENT. SINCE THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH THE AES, IT MAINTAI NED THE DOCUMENTS AS REQUIRED UNDER RULE 10D OF THE I.T. RU LES. FOR ITS TP STUDY, THE ASSESSEE CONSIDERED THE TRANSACTIONAL NET MARGIN ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 7 OF 22 METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DE TERMINING THE ALP OF THE TRANSACTION OF PAYMENT OF THE TECHNI CAL AND OTHER SUPPORT SERVICE FEES TO THE JOINT PROJECT ADVISORS. THEREAFTER, AFTER CONSIDERING THE AVERAGE MARGIN OF THE COMPARA BLE COMPANIES, THE ASSESSEE OBSERVED THAT THE PROFIT MA RGIN @11% IN THE CASE OF THE ASSESSEE IS MUCH MORE THAN 4% IN THE CASE OF COMPARABLE COMPANIES AND THEREFORE, TRANSACTION WAS CONSIDERED TO BE AT ARMS LENGTH PRICE. ACCORDINGLY , ASSESSEE FILED ITS RETURN OF INCOME BEFORE THE AO. AO, HOWEV ER, OBSERVED THAT THE RETURN OF INCOME IS NOT ACCOMPANIED BY FOR M NO.3CEB. AS THE ASSESSEE HAS FAILED TO COMPLY WITH THE PROVI SIONS OF SECTION 92E OF THE ACT FOR THE A.Y 2003-04, HE WAS OF THE OPINION THAT THE ASSESSEE WAS LIABLE FOR PENALTY U/S 271BA OF THE I.T. ACT. HOWEVER, THE ASSESSEE, THEREAFTER FILED FORM NO.3CEB WITH A DELAY AND THE PENALTY PROCEEDINGS WERE NOT PROCEEDE D WITH. 10. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS OF T HE INTERNATIONAL TRANSACTION AND ALSO A DETAILED NOTE ON THE ABOVE TWO EXPENSES ALONG WITH THE RELEVANT EVIDENCE TO SU BSTANTIATE THE CLAIM. THE ASSESSEE FURNISHED PART OF THE INFOR MATION RELATING TO THE INTERNATIONAL TRANSACTIONS. THE AO, ON VERIFICATION OF THE SAME, FOUND THAT THE ASSESSEE HAS ONLY FURNI SHED A COPY OF THE TECHNICAL AND OTHER SUPPORT SERVICES AGREEME NT ENTERED INTO WITH THE COMPANIES. THE AO THEREFORE, ASKED TH E ASSESSEE TO FURNISH COMPLETE DETAILS OF THE NATURE OF THE SERVI CES RENDERED BY THE FOREIGN PARTIES, COPIES OF DOCUMENTS AND OTHER RELEVANT INFORMATION WHICH SUPPORT THE CLAIM OF THE ASSESSEE . IN RESPONSE, THE ASSESSEE FILED ONLY COPIES OF PERMISSIONS/APPROVALS OBTAINED FROM THE EXCHANGE CO NTROL ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 8 OF 22 DEPARTMENT, RBI, HYDERABAD FOR ONWARD REMITTANCE AB ROAD. NO OTHER DETAILS WERE FURNISHED. THE AO, THEREFORE, R EFERRED THE MATTER TO THE FILE OF THE TPO FOR DETERMINATION OF THE ALP. 11. THE TPO, AFTER CONSIDERING THE VARIOUS CLAUSES OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE SWARNA TOLLW AYS (P) LTD, OBSERVED THAT THOUGH THE AGREEMENT IS SAID TO HAVE BEEN ENTERED INTO FOR THE TECHNICAL AND OTHER TECHNICAL SUPPORT SERVICES, THE ASSESSEE HAS FAILED TO FURNISH ANY EV IDENCE FOR THE RENDERING OF THE SO CALLED TECHNICAL AND OTHER SERV ICES BY THE AES TO THE ASSESSEE COMPANY. DURING THE COURSE OF THE T RANSFER PRICING PROCEEDINGS, THE ASSESSEE COMPANY FURNISHED NUMBER OF BLANK FORMS UNDER THE HEADING SERVICES AS PROVIDE D TO IT BY THE JT. PROJECT ADVISORS. HOWEVER, THE TPO OBSERVED THA T BLANK FORMS ARE IN THE NATURE OF GENERAL GUIDANCE MATERIAL AND THESE COULD HAVE BEEN PROVIDED BY ANY TECHNICALLY SKILLED CONSULTANCY/MANAGERS OF THE ASSESSEE COMPANY. HE AL SO OBSERVED THAT THE ASSESSEE HAS SUBMITTED A LIST OF PERSONS WHO VISITED INDIA FROM THE AE COUNTRY AND ALSO THE LIST OF EMPLOYEES OF THE ASSESSEE COMPANY WHO WENT ABROAD TO GET TRAI NED WITH THE AES AND HELD THAT IT ONLY SHOWS THAT FEW PERSONS FR OM AES CAME TO INDIA FROM TIME TO TIME AND THAT THEIR LOCAL EXP ENSES, STAY ETC., WAS BORNE BY THE ASSESSEE COMPANY ONLY AND FU RTHER HELD THAT UNLESS AND UNTIL IT IS PROVED THAT THESE COMPA NIES HAVE PROVIDED TECHNICAL SERVICES WORTH RS.7.5 CRORES TO THE ASSESSEE, THE SAME CANNOT BE TREATED AS SERVICES RENDERED BY THE AES. HE ALSO OBSERVED THAT THE ASSESSEE WAS NOT THE REAL CO NTRACTOR FOR THE ROAD PROJECT AS THE ENTIRE PROJECT WAS GIVEN ON SUB-CONTRACT TO M/S. MADHUCON BINAPURI JV AND THAT THE ROLE PLAY ED BY THE ASSESSEE IN THE ACTUAL EXECUTION OF THE CONTRACT IS INSIGNIFICANT. ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 9 OF 22 HE FURTHER OBSERVED THAT THE INDEPENDENT CONSULTANT S ALSO HAVE BEEN APPOINTED BY SWARNA TOLLWAYS (P) LTD AND NHAI TO MONITOR AND SUPERVISE THE PROJECT. THUS, HE HELD THAT THE R OLE PLAYED BY THE ASSESSEE AND ITS AES IS NOT PROVED. HE, THEREFO RE, HELD THE TRANSACTION TO BE A SHAM TRANSACTION. FURTHER WITHO UT THE PREJUDICE TO THE ABOVE FINDING, HE ALSO NOTED THAT THE RATIO OF AE COMPANIES FOR SHARING THE EXPENDITURE AND THE INCOM E IS THE RATIO OF 61.90% AND 38.10% I.E. THE RATIO OF THEIR SHARING HOLDING IN THE ASSESSEE COMPANY. HE THEREFORE, DISBELIEVED THAT THE AES HAVE PROVIDED ANY TECHNICAL SERVICES TO THE ASSESSE E FOR EXECUTING THE NATIONAL HIGHWAY PROJECT. FURTHER, H E ALSO HELD THAT EVEN IF IT IS TO BE CONSIDERED THAT SOME SERVI CES ARE TO BE CONSIDERED TO HAVE BEEN RENDERED TO THE ASSESSEE, T HE HUGE PAYMENT OF RS.7.5 CRORES IS EXCESSIVE AND NOT JUSTI FIED. HE, THEREFORE, TREATED THE ALP OF THE SERVICES AT RS. NIL AND PROPOSED THE TP ADJUSTMENT OF THE ENTIRE PAYMENT OF RS.7.5 CRORES. ON THE BASIS OF THE PROPOSAL OF THE TPO, TH E AO DISALLOWED THE TECHNICAL AND CONSULTANCY SUPPORT FE ES OF RS.7,50,00,000 AND ADDED IT BACK TO THE TOTAL INCOM E. 12. WITHOUT PREJUDICE TO THE ABOVE FINDING, THE AO ALSO OBSERVED THAT THE PROVISIONS OF SECTION 163 ARE ATT RACTED TO THE ASSESSEES CASE AND THAT THE ASSESSEE HAS TO BE TRE ATED AS AN AGENT AND REPRESENTATIVE ASSESSEE OF THE TWO NON-RE SIDENT COMPANIES. A SHOW CAUSE NOTICE WAS ACCORDINGLY ISSU ED. IN RESPONSE, THE ASSESSEE FILED ITS REPLY DATED 18.01. 2006 STATING THAT FAVOURABLE PROVISIONS, WHETHER OF THE DOMESTIC STATUTE OR OF THE DTAA CAN BE CHOSEN BY THE ASSESSEE AND THAT THE RE IS NO SEPARATE ARTICLE IN THE DTAA BETWEEN INDIA AND MALA YSIA IN RESPECT OF EITHER FEES FOR TECHNICAL SERVICES OR FEES FOR INCLUDED ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 10 OF 22 SERVICES AND CONSIDERATION FOR THE PROVISION OF TE CHNICAL OR OTHER SUPPORT SERVICES HAS NOT BEEN SEPARATELY CLASSIFIED . FURTHER, IT WAS ALSO SUBMITTED THAT THE FEES PAID BY THE ASSESS EE WAS BUSINESS PROFITS OF THE AES AND AS THERE IS NO P E OF THE AES IN INDIA, THE SAME CANNOT BE BROUGHT TO TAX IN INDIA. HOWEVER, AO HELD THAT THE EMPLOYEES OF THE AES WHEN VISITED IN DIA AND EXECUTED THE WORK AT THE WORK SITE OF THE ASSESSEE COMPANY, IT CAN BE TERMED AS A PE. FURTHER, OBSERVING THAT THE FOREIGN AES HAVING RECEIVED INCOME THROUGH THE ASSESSEE, HE HEL D THAT THE ASSESSEE WOULD BE THE AGENT U/S 163(1) AND THERE WO ULD BE A DEEMED ACCRUAL U/S 9(1)(I) TO THE NON-RESIDENT. HE, ACCORDINGLY, HELD THAT THE AMOUNT OF RS.7.5 CRORES IS TO BE TREA TED AS THE INCOME OF THE ASSESSEE COMPANY. AGAINST THIS ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WH O CONFIRMED THE ORDER OF THE AO AND AGGRIEVED BY THE SAME, THE ASSESSEE IS IN APPEAL BEFORE US. 13. THE LEARNED COUNSEL FOR THE ASSESSEE, SHRI M.P. LOHIA, WHILE REITERATING THE SUBMISSIONS MADE BY THE AUTHO RITIES BELOW, IN ADDITION TO THE ORAL SUBMISSIONS, HAS FILED WRIT TEN SUBMISSIONS AND ALSO A LIST OF THE JUDICIAL PRECEDE NTS ON WHICH HE PLACED RELIANCE UPON. COPIES OF THE SAID JUDGMEN TS ARE ALSO FILED BEFORE US IN THE FORM OF A PAPER BOOK. COPIES OF THE AGREEMENT BETWEEN SWARNA TOLLWAYS (P) LTD AND THE A SSESSEE AND THE ASSESSEE AND ITS AES ALSO FORM PART OF THE PAPER BOOK. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO IS EMPOWERED ONLY TO DETERMINE THE ALP OF THE INTERNAT IONAL TRANSACTIONS AND CANNOT GO INTO THE GENUINENESS OR OTHERWISE OF THE TRANSACTIONS. HE SUBMITTED THAT THE TPO HAS ERR ED IN HOLDING THAT NO METHOD CAN BE APPLIED FOR DETERMINATION OF ARMS LENGTH ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 11 OF 22 PRICE OF TRANSACTION BY HOLDING THAT THE TRANSACTIO N IS NOT A GENUINE TRANSACTION. AS REGARDS THE AOS FINDING TH AT THE AES HAVE NOT RENDERED ANY SERVICES TO THE ASSESSEE AND THAT THE PAYMENT OF COMMISSION IS UNWARRANTED AND UNRELIABLE , HE HAS PLACED RELIANCE UPON SEVERAL JUDGMENTS. AS REGARDS THE DETERMINATION OF THE ALP, HE SUBMITTED THAT THE TPO HAS TO FOLLOW ONE OF THE METHODS PRESCRIBED BY THE ACT AND THE RULES TO DETERMINE THE ALP WHEREAS IN THE CASE BEFORE US, TH E TPO, WITHOUT FOLLOWING ANY OF THE METHODS PRESCRIBED HAS TAKEN THE ALP AT ZERO WHICH IS NOT IN ACCORDANCE WITH LAW. AS REGARDS THE QUANTUM OF PAYMENT MADE BY THE ASSESSEE TO ITS AES, BEING EXCESSIVE OR OTHERWISE, HE SUBMITTED THAT THE TPO H AS NO ROLE OR RIGHT TO HOLD SO, SINCE A DECISION ABOUT THE NECESS ITY OF AVAILING THE SERVICE AND THE JUSTIFICATION ON THE QUANTUM OF PAYMENT LIES WITHIN THE SOLE DISCRETION OF THE ASSESSEE AND THE COMMERCIAL EXPEDIENCY AND NEITHER THE TPO NOR THE AO HAS ANY R OLE TO PLAY IN IT. HE RELIED UPON THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF SA BUILDERS VS. CIT REPORTED IN 288 ITR 1 FOR THIS PROPOSITION. THE LEARNED COUNSEL FOR THE ASSESSEE, STRENUOUSLY HAS TAKEN US THROUGH VARIOUS CLAUSES OF THE AGREEME NT TO DEMONSTRATE THAT THE ASSESSEE HAS PROVED BEYOND REA SONABLE DOUBT THAT THE AES HAVE RENDERED SERVICES TO IT AND THEREFORE THE PAYMENT IS JUSTIFIED. IN THE ALTERNATIVE AND WITHOU T PREJUDICE TO THE ABOVE CONTENTIONS, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT NONE OF THE AUTHORITIES BELOW HAVE C ONSIDERED THE TP STUDY DONE BY THE ASSESSEE AND HAVE NOT EXAMINED THE AVERAGE MARGIN OF THE COMPARABLE COMPANIES AND HAVE NOT ARRIVED AT THE CORRECT ALP OF THE TRANSACTION. IN V IEW OF THE SAME, ACCORDING TO HIM, EVEN IF THE ORDER OF THE CIT (A) IS REVERSED HOLDING THAT THE SERVICES WERE RENDERED TO THE ASSE SSEE, THE ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 12 OF 22 ISSUE WILL STILL HAVE TO BE REFERRED TO THE TPO FOR DETERMINATION OF THE ALP. THUS, ACCORDING TO HIM, THE ORDERS OF THE AUTHORITIES BELOW ARE NOT SUSTAINABLE. 14. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ONUS I S ON THE ASSESSEE TO PROVE THAT SERVICES HAVE BEEN RENDERED BY THE AES AND ALSO THAT THE PRICE CHARGED BY THE AES IS AT AL P. HE SUBMITTED THAT THE ASSESSEE IS BOUND TO APPLY VARIO US FILTERS BEFORE ARRIVING AT THE ALP AND FOR DETERMINATION OF THE ALP, THE TPO IS EXPECTED TO ANALYZE THE TRANSACTION AND BE S ATISFIED ABOUT THE RENDERING OF THE SERVICES BY THE AES. THUS, ACC ORDING TO HIM, THERE IS NO ERROR IN THE ORDER OF THE TPO. HE FURTH ER SUBMITTED THAT THE AO WHO HAS THE POWER AND A DUTY TO EXAMINE THE GENUINENESS OF THE TRANSACTION ALSO HAS EXAMINE THE SAME, BUT THE ASSESSEE HAS FAILED TO PROVE THAT THE SERVICES HAVE IN FACT BEEN RENDERED. HE SUBMITTED THAT THE ONLY EVIDENCE FILED BY THE ASSESSEE ARE THE BLANK FORMS ALLEGEDLY ISSUED BY THE AES TO THE ASSESSEE AND ON PERUSAL OF THESE FORMS, IT IS CLEAR THAT THEY ARE GENERAL AND ARE AVAILABLE FOR EXECUTION OF ANY CONS TRUCTION OR INFRASTRUCTURE PROJECTS. THEREFORE, ACCORDING TO HI M, THE TECHNICAL AND SUPPORT SERVICES HAVE NOT BEEN PROVID ED TO THE ASSESSEE BY THE AES. HE SUBMITTED THAT EVEN IF IT IS TO BE ACCEPTED BUT NOT ADMITTED THAT THE TPO CANNOT GO IN TO THE VERACITY OF THE TRANSACTIONS OR DECISION OF THE ASS ESSEE TO AVAIL THE SERVICES, IT IS WITHIN THE REALM OF THE AO TO E XAMINE THE GENUINENESS OF THE SAME AND THE AO IN THE PRESENT C ASE HAS DONE SO BEFORE DISALLOWING THE SAME. THEREFORE, ACC ORDING TO HIM, THE ASSESSMENT ORDER IS TO BE UPHELD. ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 13 OF 22 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE MAIN GRIEVANCE OF THE ASSE SSEE IN THIS APPEAL IS AGAINST THE ORDER OF THE CIT (A) CONFIRMI NG THE FINDING OF BOTH THE TPO AND THE AO THAT THE TRANSACTIONS OF THE ASSESSEE WITH ITS AES ARE SHAM TRANSACTIONS AND THEREFORE, NO VALUE COULD BE ASSIGNED TO THEM. FROM THE FACTS OF THE CA SE BROUGHT OUT IN DETAIL IN THE PARAGRAPHS ABOVE, IT IS SEEN T HAT IN MARCH, 2001, GOVT. OF INDIA HAD AUTHORIZED THE NHAI TO ENT ER INTO AN AGREEMENT WITH CIDBI MALAYSIA WHICH WAS AWARDED A C IVIL PROJECT OF NHAI BASED ON MEMORANDUM OF AGREEMENT BE TWEEN GOVT. OF INDIA AND GOVT. OF MALAYSIA, REGARDING VAR IOUS HIGHWAY PROJECTS IN ANDHRA PRADESH. IN JUNE, 2001, AN ASSIG NMENT AGREEMENT WAS ENTERED INTO BETWEEN CIDBI AND NHAI, AS PER WHICH, THE CONTRACT WAS TRANSFERRED IN FAVOUR OF M/ S SWARNA TOLL-WAY PVT. LTD, WHO IN TURN, ENTERED INTO AN AGR EEMENT WITH THE ASSESSEE COMPANY FOR EXECUTION OF THE VARIOUS W ORKS AND THE LUMP SUM CONTRACT WORK WAS FIXED AT RS.216 CRORES. THE COPY OF THE CONTRACT IS PLACED AT PAGES 168 TO 304 OF THE P APER BOOK. WE FIND THAT THE EPC CONTRACT WAS FOR THE WIDENING AND REHABILITATION OF THE EXISTING 2-LANE HIGHWAY FROM KM 54.383 TO KM 111.6000 (DESIGNED CHAINAGES) ON THE TADA- NELLO RE SECTION OF THE NATIONAL HIGHWAY NO.5 IN ANDHRA PRADESH. FRO M THE RECITALS IN THE AGREEMENT, IT IS SEEN THAT THE CONT RACT IS FOR THE WORKS KNOWN AS DESIGN, ENGINEERING, CONSTRUCTION AN D COMPLETION OF THE ABOVE MENTIONED WORK. THE ASSESSE E HEREIN, IN TURN HAD ENTERED INTO A SUB CONTRACT WITH M/S MADHU CON BINAPURI JV FOR CONSTRUCTION AND COMPLETION OF THE ABOVE HIGHWAY ROAD AWARDED TO IT UNDER THE EPC CONTRACT E XCEPT THE FOLLOWING EXCLUSIONS: ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 14 OF 22 A. DESIGN AND ENGINEERING, B. TOLL EQUIPMENT, C. ALL WORKS RELATED TO BRIDGE III/LOVER SWARNAMUKH I, D. WORKS FOR EMERGENCY TELEPHONE SYSTEM. THE LUMPSUM SUB CONTRACT PRICE WAS FIXED AT RS. 161,88,00,000/- AND IT WAS FURTHER AGREED THAT THE CONTRACTOR SHALL PROVIDE FREE OF CHARGE TO THE SUB CONTRACTOR MATERIALS UPTO THE VALUE OF RS.30,OO,OO,OOO (RUPEES THIRTY CRORES ONLY)FOR USE IN THE SUB CONTRACT WORKS. 16. THUS IT CAN BEEN SEEN THAT THE ENTIRE WORK HAS NOT BEEN ASSIGNED TO THE SUB CONTRACTOR BY THE ASSESSEE. THE MOST IMPORTANT WORK OF DESIGN AND ENGINEERING WORK HAD B EEN EXCLUDED FROM THE SUB-CONTRACT. FURTHER, FROM CLAUS E 25 OF THE SUB CONTRACT AGREEMENT, IT IS SEEN THAT THE CONTRAC TOR, I.E., THE ASSESSEE HEREIN IS RESPONSIBLE FOR THE DESIGN EXCEP T TO THE EXTENT THAT THE SUB CONTRACTOR SHALL BE RESPONSIBLE FOR TH E DESIGN AND SUITABILITY FOR THE PURPOSE OR PERFORMANCE OF ANY P ART OF THE SUB- CONTRACT WORKS WHICH EITHER EXPRESSLY OR BY IMPLICA TION LEAVES ANY QUESTION OF DESIGN, SPECIFICATION OR OF CHOICE OF MATERIALS, GOODS OR WORKMANSHIP TO THE SUB CONTRACTOR. CLAUSE 79 OF THE AGREEMENT FURTHER REITERATES THAT THE RESPONSIBILIT Y FOR DESIGN IS WITH THE ASSESSEE. THUS, IT CAN BE SEEN THAT THE SU B-CONTRACT WAS ESSENTIALLY FOR THE CONSTRUCTION WORK. THEREFOR E THE FINDING OF THE AUTHORITIES BELOW THAT THE ENTIRE CONTRACT H AS BEEN EXECUTED BY THE SUB CONTRACTOR ONLY IS NOT CORRECT. THE TECHNICAL AND OTHER SUPPORT SERVICE AGREEMENT BETWEEN THE ASS ESSEE AND ITS AES IS PLACED AT PAGES 344 TO 382 OF THE PAPER BOOK. THE ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 15 OF 22 AES HAVE BEEN DESCRIBED AS JOINT PROJECT ADVISORS AND THE CONTRACT IS TO PROVIDE THE ASSESSEE HEREIN DESCRIBE D AS THE EMPLOYER, THE ENGINEERING, TECHNICAL AND OTHER SUPP ORT SERVICE REQUIRED FOR SMOOTH AND TIMELY PERFORMANCE BY THE E MPLOYER OF ITS OBLIGATIONS UNDER THE EPC CONTRACT. THE CLAUSE 2 OF THE AGREEMENT DEFINES THE SCOPE AND PURPOSES OF THE SER VICES WHILE, CLAUSE 2.5 SETS OUT THE GENERAL OBLIGATIONS OF THE JOINT PROJECT ADVISORS. THE DETAILS OF THE SERVICES TO BE PROVIDE D BY JOINT PROJECT ADVISORS ARE GIVEN IN SCHEDULE A ATTACHED T O THE AGREEMENT. FOR THE SAKE OF READY REFERENCE, THE SAM E IS REPRODUCED HEREUNDER: SCHEDULE A SERVICES TO BE PROVIDED BY JOINT PROJECT ADVISORS A. PROJECT MANAGEMENT SERVICES * DESIGN AND DEVELOPMENT OF CONSTRUCTION PLAN AND SUBCONTRACTING STRATEGIES * DEVELOPMENT OF WORK SEQUENCE AND PROJECT CONSTRUC TION FRAMEWORK * REVIEW OF MONTHLY PROJECT STATUS TO ENSURE COMPL IANCE WITH WORK SEQUENCE AND PROJECT CONSTRUCTION FRAMEWORK * PROVISION OF SPECIALIST CONSTRUCTION ADVICE B. DESIGN AND TECHNICAL '' TECHNICAL ADVICE ENGINEERING SOLUTIONS . ADVICE ON QUARRY SET UP BUDGET C. BUDGET & TENDER ADVICE ON TENDER STRATEGY PREPARATION OF DETAILED BUDGET REGULAR BUDGET REVIEW AND REVISION' D. CONTRACT AND LEGAL SUB CONTRACT AGREEMENTS ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 16 OF 22 REVIEW OF SUB CONTRACT AGREEMENTS TO ENSURE COMP LIANCE WITH PROJECT AGREEMENTS, CONCESSION AGREEMENT AND OTHER RELEVANT AGREEME NTS REVIEW OF CONTRACTUAL ISSUES ARISING, IF ANY ASSISTANCE IN NEGOTIATION OF SUB CONTRACT AGREEM ENT REVIEW OF EPC CONTRACT AGREEMENTS E HUMAN RESOURCE SERVICES * DEVELOPMENT OF PROJECT MANPOWER J2LAN F. FINANCIAL SERVICES DESIGN AND DEVELOPMENT OF FINANCIAL AND MANAGEM ENT ACCOUNTING STRATEGIES DEVELOPMENT OF ACCOUNTING POLICIES AND PROCEDURES CONCEPTUALIZATION OF PROJECT INTERNAL CONTROLS F RAMEWORK REVIEW OF MONTHLY FINANCIAL STATUS TO ENSURE COM PLIANCE WITH STRATEGIES 17. FROM THE ABOVE, IT APPEARS THE ASSESSEE HAS EMP LOYED THE SERVICES OF ITS PARENT COMPANIES/AES FOR THE DESIG NING AND ENGINEERING SERVICES AND ALSO OVERALL SUPERINTENDEN CE OF THE PROJECT. 18. FROM THE ASSESSEES SUBMISSIONS DATED 7/3/2005 ADDRESSED TO THE AO WHICH IS PLACED AT PAGE NO.366 OF THE PAPER BOOK, THE ASSESSEE HAS MADE PAYMENTS OF RS.7,50,00, 000 AS TECHNICAL AND OTHER SUPPORT SERVICES, NO TAX IS DED UCTED FROM THE PAYMENT, AS THE SAME IS TAXABLE IN MALAYSIA IN THE HANDS OF FOREIGN COMPANIES AS BUSINESS INCOME UNDER ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND MALAYSIA. HE HAS ALSO FILED COPIES OF THE CERTIFICA TES OF THE INCOME TAX OFFICER WARD 14(3) (TDS) HYDERABAD WHO H AS AUTHORIZED THE ASSESSEE COMPANY TO MAKE THE REMITTA NCES ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 17 OF 22 WITHOUT DEDUCTING INCOME TAX AS SOURCE U/S 195(2) O F THE I.T. ACT. FURTHER, THE ASSESSEE ALSO HAD SUBMITTED THE B REAK UP OF THE PERSONNEL COSTS AND MISCELLANEOUS EXPENDITURES WHICH INCLUDE SALARIES AND WAGES PAID TO EMPLOYEES INCLUD ING ONE DIRECTOR OF THE COMPANY, FOOD ALLOWANCE, SPECIAL AL LOWANCE AND LEAVE ENCASHMENT EXPENSES. THUS, ACCORDING TO HIM, THE EMPLOYEES OF THE AES HAD VISITED INDIA AND HAD PROV IDED THE SERVICES REQUIRED AND THEREFORE, THE FINDINGS OF TH E AO AND THE CIT (A) THAT THE AES HAVE NOT RENDERED ANY SERVICES AND THE TRANSACTIONS ARE SHAM TRANSACTIONS IS WITHOUT ANY B ASIS. HE HAS ALSO DRAWN OUR ATTENTION TO VARIOUS SERVICES PROVID ED TO THE COMPANY. 19. IT IS SUBMITTED THAT DESIGN MANAGEMENT PLAYS A KEY PART IN THE OVERALL PROJECT AND SUCH A RESOURCE WAS NOT SUF FICIENTLY INCORPORATED IN THE OPERATIONS OF THE ASSESSEE IN I NDIA AND IN ORDER TO MINIMIZE THE PROJECT RISKS, THE ASSESSEE H AS RECEIVED ADEQUATE SUPPORT FROM THE AES IN THIS REGARD. IT IS SUBMITTED THAT THE AES ALSO PROVIDED VALUE ENGINEERING SERVIC ES AND DESIGN ENHANCEMENT SERVICES AND THAT SUCH SERVICES WERE UT ILIZED TO FURTHER ENHANCE THE QUALITY OF THE END PRODUCT AND IN COMPLIANCE WITH SUCH BENCHMARKS AS AMERICAN ASSOCIA TION OF STATE HIGHWAY AND TRANSPORTATION OFFICIAL (AASHTO), BUREAU OF INDIAN STANDARDS AND OTHER STANDARDS PRESCRIBED. 20. WITH REGARD TO BUDGET AND TENDER MANAGEMENT, IT IS SUBMITTED THAT THE AES HAVE PROVIDED THE COMPANY VI ABLE EXPERTISE IN PROJECT MANAGEMENT WHEREIN A SYSTEMATI C APPROACH ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 18 OF 22 OF CONTROLLING COSTS WAS ADOPTED AND ARE PROVIDING COST CONTROL THROUGH SPECIAL COST MANAGEMENT TECHNIQUES. 21. AS REGARDS CONTRACTUAL AND OTHER SERVICES, IT W AS SUBMITTED THAT THE AES WERE INSTRUMENTAL IN ASSISTING THE COM PANY TO REVIEW THE EPC CONTRACT AGREEMENT FROM THE TOLL CON CESSIONAIRE AND ALSO TO PRODUCE A VERY RISK-MITIGATED SUB-CONTR ACT AGREEMENT AND ALSO HELPED THE COMPANY TO IDENTIFY A ND ADDRESS SPECIAL ISSUES. 22. AS REGARDS HUMAN RESOURCE DEVELOPMENT, IT WAS SUBMITTED THAT THE AES HAVE PLAYED A STRATEGIC ROLE IN THE DEVELOPMENT OF HUMAN RESOURCE AND HAVE BEEN INSTRUM ENTAL IN THE SUCCESS OF THE PROJECT. IN SUPPOR OF THESE CONT ENTIONS, THE AO AND THE TPO DIRECTED THE ASSESSEE TO PRODUCE NEC ESSARY EVIDENCE. HOWEVER, THE ASSESSEE HAS ONLY FILED COPI ES OF THE BLANK FORMS USED IN THE RESPECT OF THE CONTRACT. AS RIGHTLY POINTED OUT BY THE AUTHORITIES BELOW, THEY ARE ONLY IN THE NATURE OF GENERAL GUIDANCE MATERIAL, BUT THE ASSESSEES C ONTENTION THE AES HAVE ALSO RENDERED ANY SERVICES PURSUANT TO THE SE FORMS HAS NOT BEEN PROVED TO THE SATISFACTION OF THE AUTH ORITIES BELOW NOR TO OUR SATISFACTION. EVEN BEFORE US, THE BLANK FORMS HAVE ONLY BEEN FILED. THE ONLY TANGIBLE MATERIAL IN SUPP ORT OF THE ABOVE CLAIM BEFORE US IS THAT SOME OF THE EMPLOYEES OF THE ASSESSEE HAVE GONE FOR TRAINING TO MALAYSIA AND SOM E OF THE EMPLOYEES OF THE MALAYSIAN COMPANY HAVE VISITED IND IA AND HAVE RENDERED SOME SORT OF SERVICES. WHETHER THESE SERVICES CAN BE SAID TO BE COMMENSURATE TO THE PAYMENT MADE BY T HE ASSESSEE IS THE QUESTION BEFORE US. ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 19 OF 22 23. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HOW THE BUSINESS IS CONDUCTED IS THE SOLE DECISION OF T HE ASSESSEE. THE LEARNED COUNSEL PLACED RELIANCE UPON THE DECISI ON OF THE TRIBUNAL AT MUMBAI IN THE CASE OF MERCK LTD VS. DCI T IN ITA NO.1946/MUM/2014 DATED 31.03.2016 WHEREIN THE TRIBU NAL WAS DEALING WITH THE CASE OF AN ASSESSEE WHEREIN TH E TPO HAD TREATED THE ALP OF THE TECHNICAL CONSULTANCY FEES A S NIL AND THEREBY PROPOSING ALP ADJUSTMENT IN RESPECT OF THE ENTIRE AMOUNT PAID TO THE PARENT COMPANY FOR TECHNICAL KNO WHOW FEES. THE TRIBUNAL AT PARA 24 OF ITS ORDER HAS DEALT WITH THE ISSUE AT LENGTH AND FOLLOWING THE JUDGMENT OF THE HON'BLE DE LHI HIGH COURT IN THE CASE OF EKL APPLIANCES LTD, REPORTED I N 345 ITR 241 (DEL.) (H.C) HELD THAT WITHOUT EVALUATION THE ALP O F A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFI TS FROM ITS ORDER OR NOT; THE REAL QUESTION IS AS TO WHETHER PR ICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAV E PAID FOR THE SAME. THE TRIBUNAL HAS ALSO CONSIDERED THAT THE TPO THEREIN HAS ON THE ONE HAND, HELD THAT NO SERVICES ARE REND ERED, ON THE OTHER HAND, THERE WERE CATEGORICAL FINDINGS THAT TH E SERVICES RENDERED ARE SO GENERAL IN NATURE THAT EVEN AN EMPL OYEE OF THE ASSESSEE COULD HAVE RENDERED THE SAME. IT WAS IN T HESE CIRCUMSTANCES THAT THE TRIBUNAL HELD THAT THOUGH TH E FINDING IS GIVEN TO THE FACT THAT NO SERVICES ARE RENDERED IN THE LIGHT OF THE CONTRADICTION IN THE FINDINGS AND THE OBSERVATIONS, IT IS CLEAR THAT IN EFFECT, THE COMMERCIAL EXPEDIENCY OF THESE PAYME NT IS QUESTIONED. IN THE CASE BEFORE US ALSO, THOUGH THE TPO & AO HAVE GIVEN FINDING THAT NO SERVICES HAVE BEEN RENDE RED TO THE ASSESSEE BY THE AES, THE AO HAS ALSO TREATED THE AS SESSEE AS A REPRESENTATIVE ASSESSEE OF THE AES AND HAS TREATED THEIR INCOME ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 20 OF 22 AS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE A SSESSEE ON THE GROUND THAT THE EMPLOYEES OF THE AES HAVE VISITED INDIA AND HAVE RENDERED SERVICES IN INDIA. THEREFORE, WE FIND THAT THESE ARE CONTRADICTORY STANDS OF THE AO. SIMILAR VIEW HAS BE EN EXPRESSED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CAS E OF TNS INDIA (P) LTD VS. DCIT, REPORTED IN 40 ITR (TRIB.)1 25 DATED 17.04.2015 AFTER CONSIDERING THE EVIDENCE ON RECORD TO PROVE THAT THE ASSESSEE THEREIN HAD RECEIVED SERVICES. TH E TRIBUNAL HAD ALSO CONSIDERED AND HELD THAT THE ROLE OF THE T PO IS ONLY TO DETERMINE THE ALP OF THE TRANSACTIONS. THE TRIBUNAL HAS ALSO RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES (SUPRA) TO HOLD THAT THE TPO WENT BEYOND HIS JURISDICTION IN DENYING THE PAYMENT OF D EDUCTION, WHEREAS HIS ROLE IS LIMITED TO DETERMINING ONLY THE ALP. THE HON'BLE HIGH COURT HAS HELD THAT THE TPO CANNOT QUE STION THE BUSINESS DECISION OF AN ASSESSEE AND DETERMINE THAT NO SERVICES WERE RENDERED. SIMILAR VIEW WAS EXPRESSED BY OTHER COORDINATE BENCHES OF THE TRIBUNAL AS WELL. THUS, IT CAN BE SE EN THAT IN THE CASE BEFORE US, INITIALLY IT WAS THE TPO WHO ANALYS ED THE TRANSACTION AND GAVE A FINDING THAT THE AES HAVE NO T RENDERED ANY SERVICES TO THE ASSESSEE AND THAT THE TRANSACTI ONS ARE SHAM TRANSACTIONS. IT IS THEREAFTER THAT THE AO ALSO WEN T INTO THE DETAILS OF THE SERVICES RENDERED BY THE AE AND HAVE COME TO THE CONCLUSIONS THAT THE TRANSACTIONS ARE SHAM. THEREFO RE, IT IS CLEAR THAT THE TPO HAS TRAVELLED BEYOND HIS JURISDICTION AS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF EKL APPLIAN CES (SUPRA). FURTHER, APPLYING THE BENEFIT TEST I.E. WHETHER THE PAYMENTS MADE BY THE ASSESSEE ARE COMMENSURATE TO THE BENEFI TS ACQUIRED BY IT UNDER THE AGREEMENT, ALSO FAILS, IN VIEW OF T HE ABOVE DECISION. THEREFORE, IN OUR OPINION, THE TPO AS WEL L AS THE AO ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 21 OF 22 ARE NOT CORRECT IN HOLDING THAT THE TRANSACTIONS BE TWEEN THE ASSESSEE AND ITS AES ARE SHAM, PARTICULARLY SINCE T HE ASSESSEE WAS RESPONSIBLE FOR THE DESIGNING HIGHWAY. THE FIND INGS OF THE AUTHORITIES BELOW THAT THE ENTIRE WORK HAS BEEN EXE CUTED BY THE SUB CONTRACTOR HAS ALREADY BEEN FOUND TO BE NOT COR RECT. IN VIEW OF THE SAME, WE HOLD THAT THE ASSESSEE HAS RECEIVED SOME SERVICES FROM ITS AES. WHETHER THE BENEFIT RECEIVED BY THE ASSESSEE IS COMMENSURATE TO THE PAYMENT MADE BY IT, CANNOT BE GONE INTO IN VIEW OF THE ABOVE CITED DECISIONS AND THEREFORE, WE SET ASIDE THE ORDERS OF THE AO AND THE CIT (A) ON T HIS ISSUE. 24. COMING TO THE COMPUTATION OF THE ALP, WE FIND T HAT THE COURTS HAVE REPEATEDLY HELD THAT THE TP ADJUSTMENTS CAN ONLY BE MADE BY ADOPTING THE PRESCRIBED FIVE METHODS. THE T PO HAS NOT COMPUTED THE ALP BY HOLDING THE TRANSACTIONS AS SHA M. THEREFORE, THE MATTER NEEDS RECONSIDERATION AND REC OMPUTATION OF THE ALP BY THE TPO. IN VIEW OF THE SAME WE DEEM IT FIT AND PROPER TO SET ASIDE THE ORDERS OF THE AO AND SET AS IDE THE MATTER TO THE AO/TPO FOR RE-DETERMINATION OF THE ALP IN AC CORDANCE WITH THE RULES AND THE PRECEDENTS ON THE ISSUE. ASS ESSEES GROUNDS OF APPEAL NOS 1.1 TO 1.10 ARE THUS, TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 25. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.457/ HYD/2007 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. ITA NO.1658/HYD/2008 26. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY TH E ORDER OF THE CIT (A) IN CONFIRMING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) ITA NOS 457 OF 07 AND 1658 OF 08 IWM CONSTRUCTIONS P LTD HYDERABAD PAGE 22 OF 22 OF THE ACT BY HOLDING THAT THE ASSESSEE HAS CONCEAL ED INCOME TO THE EXTENT OF RS.7.50 CRORES BY FURNISHING INACCURA TE PARTICULARS IN RESPECT OF ALP OF TECHNICAL CONSULTANCY SUPPORT FEES PAID BY THE ASSESSEE. AS REGARDS THE ABOVE ISSUE ON MERIT, WE HAVE ALREADY SET ASIDE THE ISSUE TO THE FILE OF THE TPO FOR RE- DETERMINATION OF THE ALP. IN VIEW OF THE SAME, THIS PENALTY CANNOT BE SUSTAINED. IN VIEW OF THE SAME, THE PENAL TY ORDER IS ALSO SET ASIDE WITH THE LIBERTY TO THE AO TO RE-INI TIATE THE PENALTY PROCEEDINGS, IF SO REQUIRED, AFTER COMPLETION OF TH E ASSESSMENT PROCEEDINGS AFRESH. 27. IN THE RESULT, PENALTY APPEAL IS ALSO TREATED A S ALLOWED FOR STATISTICAL PURPOSES. 28. TO SUM UP, BOTH THE APPEALS ARE TREATED AS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2016. S D/ - S D/ - ( S. RIFAUR RAHMAN ) ( P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 20 TH JULY, 2016. VNODAN/SPS COPY TO: 1. M/S. IWM CONSTRUCTIONS (P) LTD, C/O CHAKRADHAR & NA NDAN, 201, SRINATH RESIDENTIAL COMPLEX, SD ROAD, SECUNDER ABAD 500003 2. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) RANG E-2 HYDERABAD 3. CIT(A) - III HYDERABAD 4. CIT II HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER