M/s IJM (India) Infrastructure Limited, Hyderabad V. The Asst.CIT, Cir2(1), Hyderabad

ITA 1814/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69745 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M B REDDY
• Assessee Lawyers: I RAMA RAO
• Keywords: Capital asset; Depreciation; Transfer pricing; Residential status; Double taxation relief; International transaction; Avoidance of tax; Onus to prove; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 92B; 92A; 133A; 234B; 133(6); 37(1); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1814/HYD/2012 ASSESSMENT YEAR 2008-09 M/S. IJM (INDIA) INFRASTRUCTURE LTD., HYDERABAD PAN: AAACI7067A VS. THE ACIT CIRCLE-2(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI I. RAMA RAO RESPONDENT BY: SRI M.B. REDDY DATE OF HEARING: 03.06.2013 DATE OF PRONOUNCEMENT: 22.08.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY DCIT, CIRCLE-2(1), HYDERABAD U/S. 143(3) R.W.S. 92CA(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 DATED 1 5.10.2012 WHICH WAS PASSED CONSEQUENT TO DRP DIRECTIONS DATED 27.9.2012. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER PASSED BY THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD U/S 143(3) R.W.S. 92CA(3) R.W.S 144C(13) OF THE INCOME TAX ACT, 1961 TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED IN MAKING ADJUSTMENTS UNDER CHAPTER X IN RESPECT OF TRANSACTIONS WHICH WERE NOT 'INTERNATIONAL TRANSACTIONS' AS DEFINED IN SECTION 92B OF THE ACT. 3. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED IN NOT APPRECIATING THAT THE PROVISIONS OF CHAPTER X ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 2 DO NOT APPLY IN RESPECT OF TRANSACTIONS WITH 'RESIDENT' ENTITIES. 4. THE LEARNED DY. COMMISSIONER OF' INCOME TAX, CIRCLE 2(1), HYDERABAD HAS ERRED IN MAKING ADDITION IN RESPECT OF TRANSFER PRICING ADJUSTMENT MADE BY THE TPO AMOUNTING TO RS. 104,95,00,000. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS TO BE DELETED IN ENTIRETY. 5. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED IN NOT APPRECIATING THAT THE IJM CORPORATION BERHAD, MALAYSIA DELHI PROJECT OFFICE HAS SUB- CONTRACTED THE WORKS TO THE APPELLANT COMPANY BY RETAINING A VERY SMALL MARGIN OF 3.2% AND FILING INCOME TAX RETURNS BEFORE THE DELHI INCOME TAX AUTHORITIES. 6. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED IN NOT APPRECIATING THAT THE REIMBURSEMENT OF EXPENDITURE IS PURELY ON COST BASIS AND DO NOT INCLUDED ANY PROFIT ELEMENT. 7. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED IN NOT APPRECIATING THAT THE EFFECT OF PROPORTIONATE ADJUSTMENT ON ARM'S LENGTH PRICE SHOULD BE ON AE SALES. 8. THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD, LEARNED TRANSFER PRICING OFFICER AND HON'BLE DISPUTE RESOLUTION PANEL HAVE ERRED IN: (A) PASSING THE ORDER WITHOUT DEMONSTRATING THAT APPELLANT HAD MOTIVE OF TAX EVASION. (B) NOT APPRECIATING THAT THE CHARGING OR COMPUTATION PROVISION RELATING TO INCOME UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS OR PROFESSION' DO NOT REFER TO OR INCLUDE THE A MOUNTS COMPUTED UNDER CHAPTER X AND THEREFORE ADDITION MADE UNDER CHAPTER X IS BAD IN LAW. 9. THE HON'BLE DRP HAS ERRED IN CONFIRMING THE ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 3 ADDITIONS MADE BY THE TPO BY ACCEPTING THE EXTREME PROFIT MARGIN RATE COMPARABLES. 10. THE LEARNED ASSESSING OFFICER, TPO AND THE DRP HAS ERRED IN MAKING ADDITIONS IN RESPECT OF INDIVIDUAL INTERNATIONAL TRANSACTIONS DESPITE MAKING ADJUSTMENT AT ENTERPRISE LEVEL PROFIT MARGIN USING TNMM. 11. THE FINDINGS AND THE CONCLUSIONS OF THE LEARNED TRANSFER PRICING OFFICER, DRP AND THE ASSESSING OFFICER ARE INCORRECT, BAD IN LAW AND LIABLE TO BE QUASHED. 12. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS. 104,95,00,000/- IS TO BE DELETED IN ENTIRETY. 13. THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD, HAS ERRED IN MAKING THE ADDITION OF RS. 2,29,00,000 IN RESPECT OF THE SUB- CONTRACTORS. 14. THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD, HAS ERRED IN MAKING THE ADDITION OF RS. 10,54,21,341 IN RESPECT OF THE DISCREPANCIES RELATING TO THE SUB-CONTRACTORS AMOUNTS PAID AS CLAIMED BY THE APPELLANT VIS-A- VIS AMOUNTS RECEIVED BY THE SUB-CONTRACTORS. 15. THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD, HAS ERRED IN MAKING THE ADDITION OF RS. 1,86,12,721 IN RESPECT OF THE SUB- CONTRACTORS WHERE LETTERS WERE RETURNED UNSERVED. 16. THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD, HAS ERRED IN MAKING THE ADDITION OF RS. 19,98,225 RELATING TO TRAVEL EXPENSES. 17. THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, INTEREST IS NOT LEVIABLE UNDER SECTION 234B AND 234D. THE APPELLANT ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 4 DENIES ITS LIABILITY TO PAY INTEREST UNDER SECTION 234B AND 234D. 18. IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE ORDER PASSED BY THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HYDERABAD TO THE EXTENT PREJUDICIAL TO THE APPELLANT BE QUASHED OR IN THE ALTERNATIVE (I) ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUST- MENT AMOUNTING TO RS.104,95,00,000/- BE DELETED; (II) ADDITION ON ACCOUNT OF DISALLOWANCE OF SUBCONTRACT EXPENDITURE AMOUNTING TO RS.14,69,34,062. (III) ADDITION ON ACCOUNT OF DISALLOWANCE OF TRAVELLING EXPENSES AMOUNTING TO RS.19,98,225. (IV) INTEREST LEVIED UNDER SECTION 234B AND 234D BE DELETED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CLOSELY HELD LIMITED COMPANY PROMOTED BY IJM CORPORATION, BERHAD . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WORKS CONTRA CTS, CONSTRUCTION AND MAINTENANCE OF ROADS, BRIDGES, TOW NSHIPS, RESIDENTIAL AND COMMERCIAL BUILDINGS. THE RETURN O F INCOME FOR THE ASSESSMENT YEAR 2008-09 WAS FILED BY THE ASSESS EE ON 29 TH SEPTEMBER, 2008, DECLARING A TOTAL INCOME OF RS. 10 ,62,00,470 AND PAID TAXES ACCORDINGLY. THE CASE WAS SELECTED FOR S CRUTINY AND SUBSEQUENTLY, A REFERENCE WAS GIVEN BY THE ASSESSIN G OFFICER TO THE TRANSFER PRICING OFFICER (TPO). DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY PRODUCED BOOKS OF ACCOUNT, DOCUMENTS AND OTHER RELEVANT RECORDS AS DIRECTED BY THE TPO AND THE ASSESSING OFFICER FROM TIME TO TIME. THE TPO HA S PASSED THE ORDER U/S. 92CA(3) OF THE INCOME-TAX ACT, 1961 ON 2 7 TH OCTOBER, 2011 DETERMINING THE ARMS LENGTH PRICE AT RS. 104.9 5 CRORES. SUBSEQUENTLY, THE ASSESSING OFFICER HAS COMPLETED T HE DRAFT ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 5 ASSESSMENT ORDER ON 30.12.2011, COMPUTING THE TOTAL TAXABLE INCOME AT RS. 130,46,32,760. FINALLY, THE DRAFT AS SESSMENT ORDER WAS SERVED ON THE ASSESSEE ON 30.12.2011. DETAILS O F THE ADDITIONS CONSIDERED BY THE ASSESSING OFFICER ARE AS UNDER: SL. NO. PARTICULARS ADDITION (RS.) 1) ADDITIONS U/S. 92CA 104,95,00,000 2) DISALLOWANCE OF SUB - CONTRACTOR PAYMENTS 2,29,00,000 3) DISALLOWANCE OF DIFFERENCE IN SUB - CONTRACTOR ACCOUNTS 10,54,00,000 4) 5% DISALLOWANCE ON SOME OF THE SUB - CONTRACTORS PAYMENTS 1,86,12,721 5) DISALLOWANCE OF POWER AND FUEL EXPENSES 19,98,225 3.1 AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESS EE HAD PREFERRED TO FILE THE OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP FOR SHORT). IT WAS SUBMITTED BY THE AR BEFORE THE DRP AS FOLLOWS: I) THE ASSESSEE-COMPANY IJM (INDIA) INFRASTRUCTURE LTD ., IS CARRYING ON THE BUSINESS OF WORKS CONTRACTS, CONSTR UCTION AND MAINTENANCE OF ROAD, BRIDGES, TOWNSHIPS, RESIDE NTIAL AND COMMERCIAL BUILDINGS. THE ASSESSEE COMPANY IS PROMOTED BY IJMII MAURITIUS, WHICH, IN TURN, IS A W HOLLY OWNED SUBSIDIARY OF IJM CORPORATION BERHAD, MALAYSI A. II) DURING THE FINANCIAL YEAR 2007-08, THE ASSESSEE COM PANY SECURED SUB-CONTRACTS FROM IJM CORPORATION BERHAD, MALAYSIA PROJECT OFFICE, SITUATED AT NEW DELHI, (RE SIDENT PE), IJM-IJMII JOINT VENTURE (A RESIDENT BUSINESS E NTITY) AND IJM-NBCC-VRM-JOINT VENTURE (A RESIDENT BUSINESS ENTITY), APART FROM THE CONTRACT WORKS DIRECTLY PRO CURED FROM VARIOUS GOVERNMENTAL AND SEMI-GOVERNMENTAL AGENCIES. ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 6 III) THE TPO HAS REJECTED THE TP STUDY CONDUCTED BY THE ASSESSEE. THE TPO HAS CONDUCTED AN INDEPENDENT ANALYSIS AND SELECTED 11 COMPANIES FROM THE DATA BA SE FOR BENCHMARKING ANALYSIS AND DETERMINATION OF ARMS LENGTH PRICE. THE ASSESSEE HAD OBJECTED THE INCLUS ION OF 4 COMPANIES OUT OF THE 11 COMPANIES SELECTED BY TPO , THE OBJECTED 4 COMPANIES ARE M/S. PATEL ENGINEERING LTD., M/S. RAHEJA UNIVERSAL LTD., PRESTIGE PROJECTS LTD., AND M/S. PURAVANKER PROJECTS LTD., ON THE GROUNDS O F FUNCTIONAL COMPARABILITY AND ECONOMIC COMPARABILITY AND HIGH PROFIT MARGINS. WITHOUT CONSIDERING ASSESSEE SUBMISSIONS, THE TPO ARRIVED AT THE ARITHMETIC MEAN PLI (OP/SALES) BY FOLLOWING HIS OWN ANALYSIS. IV) THE ASSESSEE SUBMITTED BEFORE THE TPO, EXPLAINING T HAT CERTAIN TRANSACTIONS ENTERED INTO WITH THEIR RELATE D PARTY ENTERPRISES, WHO WERE RESIDENTS OF INDIA. FURTHER EXPLAINED THAT THE SAID TRANSACTIONS WERE CONSIDERE D AS INTERNATIONAL TRANSACTIONS AS AN ABUNDANT CAUTION O F COMPLYING WITH THE LAW. THE QUANTUM OF SUCH TRANSACTIONS WAS SUBMITTED. WITHOUT CONSIDERING ASSESSEE SUBMISSIONS, THE TPO TREATED THE SAID TRANSACTIONS RELATING TO TWO INDIAN RESIDENT COMPAN IES AS INTERNATIONAL TRANSACTIONS. V) THE TPO ARRIVED AT A SUM OF RS. 104.95 CRORES AS AR MS LENGTH PRICE BY REJECTING THE SUBMISSIONS AND TP ST UDY CONDUCTED BY THE ASSESSEE. VI) DURING THE FINANCIAL YEAR 2007-08, THE ASSESSEE COMPANY MADE PAYMENTS TO SUB-CONTRACTORS, M/S. MARCO ENTERPRISES AND M/S. MACRO ENTERPRISES. THE ASSESSING OFFICER HAS DISALLOWED THE PAYMENT MADE T O ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 7 THESE SUB-CONTRACTORS AN AMOUNT OF RS. 2,29,00,000 MERELY STATING THAT, THE LETTER HEADS WERE FOUND AT THE REGISTERED OFFICE OF THE ASSESSEE DURING THE COURSE OF SURVEY PROCEEDINGS CONDUCTED BY THE DEPARTMENT ON 8 TH FEBRUARY, 2011. THE ASSESSEE EXPLAINED TO THE ASSE SSING OFFICER, THE CIRCUMSTANCES UNDER WHICH THE LETTER H EADS COULD HAVE BEEN KEPT AT THE HEAD OFFICE OF THE ASSE SSEE. WITHOUT CONSIDERING THE ASSESSEE SUBMISSIONS, THE ASSESSING OFFICER HAS DISALLOWED THE PAYMENTS MADE TO THE SUB-CONTRACTORS. VII) THE ASSESSING OFFICER HAS COLLECTED INFORMATION FRO M THE SUB-CONTRACTORS U/S 133(6) OF THE INCOME-TAX ACT, 1 961. BASED ON THE INFORMATION COLLECTED FROM THE SUB- CONTRACTORS, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE CALLING FOR EXPLANATION FOR THE DIFFERENCE AMOUNT OF RS. 10,54,21,341. THE INFORMATION COLLECTED BY THE ASSESSING OFFICER IS NOT REFLECTING THE TOTAL TRANS ACTION DONE BY THE SUB-CONTRACTORS. HENCE, THEY ARE NOT COMPARABLE WITH THE ASSESSEE RECORD. THE ASSESSEE EXPLAINED THE REASONS FOR VARIATION AND RECONCILED FOR AN AMOUNT OF RS. 9,21,54,736 IN ONE SUB-CONTRACTOR ACCOUNT. HOWEVER, WITHOUT CONSIDERING THE RECONCILI ATION SUBMITTED BY THE ASSESSEE, THE ASSESSING OFFICER HA S DISALLOWED THE SAID AMOUNT OF RS. 10,54,21,341 BASE D ON ALLEGED DISCREPANCIES IN THE AMOUNT SHOWN IN THE BO OKS OF ASSESSEE VIS-A-VIS BOOKS OF THE SUB-CONTRACTORS. VIII) DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSE SSING OFFICER HAD WRITTEN LETTERS TO VARIOUS SUB-CONTRACT ORS U/S 133 (6) OF THE IT ACT, 1961. SOME OF THE LETTERS W ERE RETURNED UN-SERVED WITH VARIOUS REMARKS. THE ASSESS EE SUBMITTED A DETAILED REPLY EXPLAINING THE REASONS A ND ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 8 ALSO SUBSTANTIATED THE METHOD OF AWARDING THE WORK TO SUB-CONTRACTOR, WORK RENDERED BY THE SUB-CONTRACTOR AND PAYMENT MADE TO SUB-CONTRACTOR THROUGH ACCOUNT PAYE E CHEQUES. WITHOUT CONSIDERING THE ASSESSEE SUBMISSIO NS, THE ASSESSING OFFICER HAS DISALLOWED 5% OF THE EXPENDITURE IN RESPECT OF SOME OF THE SUB-CONTRACTO R PAYMENTS AND ARRIVED THE DISALLOWANCE AMOUNT OF RS. 1,86,12,721. IX) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE BOOKS OF ACCOUNT ALONG WITH SUPPORTING VOUCHERS. ALL THE EXPENSES INCLUDING POW ER AND FUEL WERE VERIFIED BY THE ASSESSING OFFICER ALO NG WITH THE BOOKS AND SUPPORTING VOUCHERS. WITHOUT CONSIDER ING THE ASSESSEE SUBMISSIONS AND PROPER VERIFICATION, T HE ASSESSING OFFICER HAS QUANTIFIED AN AMOUNT OF RS. 19,98,225 AND DISALLOWED UNDER THE HEAD TRAVELLING EXPENSES. 3.2 FIRSTLY, THE ASSESSEE COMPANY DISPUTED THE ANALYSIS DONE BY THE TPO AND ALSO DISPUTED THE REJECTION OF TP STUDY CONDUCTED BY THE ASSESSEE. FURTHER, THE ASSESSEE DISPUTED THE DI SALLOWANCES MADE BY THE ASSESSING OFFICER. THE DRP HAD BRUSHED ASIDE THE OBJECTIONS FILED AND CONFIRMED THE ORDER OF THE TPO . AGGRIEVED, THE ASSESSEE FILED THE PRESENT APPEAL BEFORE THIS TRIBU NAL. 3.3 THE AR SUBMITTED THAT THE TPO HAD ERRONEOUSLY EXERC ISED THE JURISDICTION UNDER THE PROVISIONS OF CHAPTER X EVEN THOUGH THERE WERE NO TRANSACTIONS, WHICH ARE IN THE NATURE OF THE 'INTERNATIONAL TRANSACTION' AS DEFINED UNDER SEC. 9 2B OF INCOME TAX ACT, 1961 INASMUCH AS NEITHER OF THE PARTIES TO THE TRANSACTION IS A NON-RESIDENT. ON BARE READING OF T HE PROVISIONS OF SEC. 92B(1) OF INCOME TAX ACT, 1961, IT IS CRYSTAL- CLEAR THAT IN ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 9 ORDER TO BE CHARACTERISED AS INTERNATIONAL TRANSACT ION, THE FOLLOWING SALIENT FEATURES MUST BE PRESENT: (I) THERE SHOULD BE A 'TRANSACTION.' (II) SUCH 'TRANSACTION' SHOULD BE BETWEEN TWO OR MORE AES AND EITHER OR BOTH OF WHOM SHOULD BE NON- RESIDENTS. (III) SUCH TRANSACTION SHOULD BE OF THE NATURE AS REFERRE D TO IN SEC. 92B. 3.4 ACCORDING TO THE AR, ALL THE ABOVE THREE (3) CONDIT IONS MUST BE CUMULATIVELY SATISFIED SO AS TO MAKE A TRANSACTI ON AN 'INTERNATIONAL TRANSACTION'. IF THERE IS A TRANSAC TION BETWEEN TWO AES AND SUCH TRANSACTION IS OF NATURE AS REFERRED T O IN SEC. 92B OF INCOME TAX ACT, 1961, IT WILL NOT BECOME AN 'INTERN ATIONAL TRANSACTION' SO AS TO FALL WITHIN THE DOMAIN OF CHA PTER X, UNLESS SUCH TRANSACTION IS BETWEEN TWO OR MORE AES AND EIT HER OR BOTH OF THEM SHOULD BE NON-RESIDENTS. HE RELIED ON THE DECI SION OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF L.G. ELECTRONICS INDIA (P) LTD. & ORS. VS. ACIT (DEL) (SB), 152 TTJ 273 (DEL). 3.5 THE AR REITERATED THAT TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE TO TRANSACTIONS BETWEEN TWO DOMESTIC REL ATED PARTIES. THE TRANSFER PRICING REGULATIONS HAVE BEEN SPECIFIC ALLY BEEN MADE APPLICABLE TO TRANSACTIONS BETWEEN TWO DOMESTIC REL ATED PARTIES BY VIRTUE OF THE AMENDMENT THROUGH FINANCE ACT, 2012. IN CASE, THE EXISTING PROVISIONS WERE APPLICABLE TO DOMESTIC TRA NSACTIONS THEN THERE WAS NO NEED TO BRING THE ABOVE AMENDMENT. 3.6 BASED ON ALL THE ABOVE, THE AR SUBMITTED THAT THE T PO HAS ERRED IN TREATING THE TRANSACTIONS BETWEEN THE ASSE SSEE AND ITS AES, AS INTERNATIONAL TRANSACTION AND APPLYING TRAN SFER PRICING REGULATIONS. THE ADDITION BEING BAD IN LAW IS LIABL E TO BE REJECTED. HE RELIED ON PARA 28.8 OF THE ORDER OF THE TRIBUNAL , HYDERABAD ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 10 BENCH 'A' IN THE CASE OF M/S. SWARANDHRA IJMII INTE GRATED TOWNSHIP DEVELOPMENT COMPANY PVT. LTD., HYDERABAD V S. DCIT, CIRCLE-3(3), HYDERABAD IN ITA NO. 2072/HYD/2011, DA TED 31.12.2012. 3.7 THE AR SUBMITTED THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IT IS ASSESSED TO INCOME-TAX IN THE STATUS OF DOMES TIC COMPANY AND WHEREAS THE AES WITH WHOM THE ASSESSEE HAD TRANSACT IONS ARE IJM CORPORATION BERHAD, DELHI PROJECT OFFICE (PE IN INDIA), HAS THE PLACE OF BUSINESS IN INDIA UNDER THE PROVISIONS OF SEC. 592 OF THE COMPANIES ACT, 1956 W.E.F. 30 TH MAY, 2005. 3.8 HE SUBMITTED THAT BY VIRTUE OF ITS REGISTRATION UND ER PROVISIONS OF SEC. 592 OF COMPANIES ACT, 1956 AND I TS AFFAIRS ARE MANAGED AND CONTROLLED IN INDIA. FURTHER, ONE OF TH E DIRECTORS OF THE PRINCIPAL COMPANY IS NOMINATED AS ATTORNEY FOR THE PURPOSE OF UNDERTAKING THE CONTRACT AWARDED BY THE MUNICIPAL C ORPORATION OF DELHI AND NATIONAL HIGHWAYS AUTHORITY OF INDIA AND IS EMPOWERED TO MANAGE AND OPERATE ENTIRE OPERATIONS IN INDIA AN D ALL THE DECISIONS IN RESPECT OF OPERATIONS IN INDIA ARE TAK EN ONLY IN INDIA AND THAT NOMINATED DIRECTOR HAD BEEN RESIDING IN IN DIA ONLY. IN OTHER WORDS, CONTROL AND MANAGEMENT OF BRANCH AFFAI RS WERE SITUATED IN INDIA WITHIN THE MEANING OF SEC. 6(3) (II) OF INCOME-TAX ACT, 1961. IN THIS CONNECTION, HE RELIED ON THE JU DGEMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BANK OF CHINA (IN LIQUIDATION) (154 ITR 617). 3.9 HE ALSO RELIED ON THE JUDGEMENT IN THE CASE OF EGYPTIAN HOTELS LTD. V. MITCHELL [1915) 6 TC 542 (HL.). 3.10 HE SUBMITTED THAT UNDER THE PROVISIONS OF DTAA WITH MALAYSIA, PE IS TREATED AS A SEPARATE LEGAL ENTITY, INDEPENDENT OF ITS FOREIGN PRINCIPAL ENTERPRISE. FURTHER, ARTICLE 24 OF THE DTAA ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 11 CONTAINS A NON-DISCRIMINATION PROVISION. IT PROHIBI TS A CONTRACTING STATE FROM MAKING ANY DISCRIMINATION IN THE MATTER OF TAXATION BETWEEN ITS OWN NATIONAL AND A NATIONAL OF THE OTHE R CONTRACTING STATE, WHO ARE PLACED IN SIMILAR CIRCUMSTANCES. IN OTHER WORDS, A CONTRACTING STATE IS OBLIGED TO PROVIDE THE SAME TA X TREATMENT TO A NATIONAL OF THE OTHER CONTRACTING STATE AS IT WOULD GIVE TO ITS OWN NATIONALS. ARTICLE 3(H) OF THE DTAA DEFINES THE TER M 'NATIONAL' TO INCLUDE BOTH-NATURAL PERSONS AND ARTIFICIAL PERSONS , SUCH AS COMPANIES, ETC. THEREFORE, PE SHOULD BE TREATED AS RESIDENT IN INDIA INASMUCH AS THE BUSINESS PROFITS ATTRIBUTABLE TO PE ARE TAXABLE IN INDIA AND ALL BUSINESS DECISIONS RELATIN G TO PE ARE ENTERED AND CONCLUDED IN INDIA. IN OTHER WORDS, THE CONTROL AND MANAGEMENT OF THE AFFAIRS OF PE ARE SITUATED IN IND IA AND THEREFORE, THE PE SHOULD BE TREATED AS RESIDENT IN INDIA, TREATING PE OTHERWISE AMOUNTS TO VIOLATION OF ARTICLE 24 OF DTAA WITH MALAYSIA. 3.11 HE RELIED ON THE ORDER OF THE TRIBUNAL, SPECIAL BEN CH, AHMEDABAD IN THE CASE OF RAJEEV SURESHBHAI GAJWANI V. ASSTT. COMMISSIONER OF INCOME-TAX, CIRCIE-6, BARODA (129 I TD 145). 3.12 HE SUBMITTED THAT IJM-IJMII JV (JOINT VENTURE) BETW EEN THE ASSESSEE AND IJM CORPORATION BERHAD, MALAYSIA AND I JM-NBCC- VRM (JOINT VENTURE BETWEEN NATIONAL BUILDING CONSTR UCTION CO. LTD., VRM AND THE ASSESSEE) ARE ALSO RESIDENTS. THE SE JOINT VENTURES ARE FORMED IN INDIA BY AN AGREEMENT BETWEE N THE RESPECTIVE PARTIES AND ASSESSED IN THE STATUS OF AO P. ACCORDING TO THE AR, IN ORDER TO DETERMINE THE RESIDENTIAL STATU S OF AOPS, ONE HAS TO REFER TO THE DEFINITION GIVEN UNDER SUB-SECT ION (2) OF SECTION 6 OF INCOME-TAX ACT, 1961, WHICH READS AS UNDER: '6. RESIDENCE IN INDIA. ---FOR THE PURPOSE OF THIS ACT. ... (2) A HINDU UNDIVIDED FAMILY, FIRM OR OTHER ASSOCIA TION OF PERSONS IS SAID TO BE RESIDENT IN INDIA IN ANY ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 12 PREVIOUS YEAR IN EVERY CASE EXCEPT WHERE DURING THA T YEAR THE CONTROL AND MANAGEMENT OF ITS AFFAIRS IS SITUATED WHOLLY OUTSIDE INDIA.' 3.13 HE ALSO DREW OUR ATTENTION TO THE PROVISIONS OF SEC . 6(2) OF INCOME-TAX ACT, 1961 WHICH PLACES AOPS IN THE SAM E CATEGORY AS 'HINDU UNDIVIDED FAMILY (HUF) AND FIRM FOR THE P URPOSE OF DETERMINING THE RESIDENTIAL STATUS. IN THE CASE OF PARTNERSHIP, IT IS SETTLED BY SUPREME COURT IN THE CASE OF ERIN ESTATE, GALAH, CEYLON V. CIT (1958) 34 ITR 1 THAT THE CONTROL AND MANAGEMENT OF ITS AFFAIRS MEANS THE DE FACTO CONTROL AND NOT THE DE JURE AND REFERS TO CONTROLLING AND DIRECTIVE POWER OFTEN DESCRIBED AS 'HEAD AND BRAIN'. 3.14 THE AR SUBMITTED THAT IN THE PRESENT CASE THE TRANS ACTIONS ARE BETWEEN TWO RESIDENT PARTIES ONLY AND THERE IS NO POSSIBILITY OF SHIFTING OF PROFITS OUTSIDE INDIA OR EROSION OF COU NTRY'S TAX BASE. THEREFORE, ITS TRANSACTIONS WITH AES ARE OUTSIDE TH E PURVIEW OF THE TRANSFER PRICING REGULATIONS. THIS PE IS ASSESSED T O INCOME-TAX IN INDIA IN THE STATUS OF FOREIGN COMPANY IN RESPECT O F ITS BUSINESS PROFITS. 3.15 HE RELIED ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF DIT (INTERNATIONAL TAXATION) VS MORGAN STANLEY (292 ITR 416). 3.16 HE ALSO RELIED ON THE FOLLOWING JUDGEMENTS FOR THE PROPOSITION THAT WHERE THERE IS NO EROSION OF TAX B ASE IN INDIA, THE PROVISION OF TRANSFER PRICING CANNOT BE APPLIED: (A) PHILIPS SOFTWARE CENTRE (P) LTD. VS. ASST. CIT [200 8) (26 SOT 226) (BANGALORE) AND (119 TTJ 721); (B) DRESDNER BANK A.G. VS. ADDL. CIT (108 ITD 375) (11 SOT 158); (C) ITO V. ZYDUS ALTANA HEALTHCARE (P.) LTD. (44 SOT 13 2) (MUM.); ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 13 (D) COTTON NATURALS (I) PVT. LTD., NEW DELHI VS. DCIT, CIRCLE 3(1), NEW DELHI IN ITA NO. 5855/DEL/2012, DATED 08.02.201 3. 3.17 NOTWITHSTANDING THE ABOVE, THE ASSESSEE SUBMITTED T HAT NO TP ADJUSTMENT UNDER THE PROVISIONS OF SEC. 92(C) OF INCOME-TAX ACT IS REQUIRED INASMUCH AS AFTER TP ADJUSTMENT, THE RE VENUE ASSESSED IN THE HANDS OF THE ASSESSEE HAD EXCEEDED THE TOTAL REVENUE RECEIVED BY AE. THIS ADJUSTMENT IS NOT PERM ISSIBLE AS HELD BY THE HON'BLE TRIBUNAL IN THE FOLLOWING CASES: (I) LI & FUNG (INDIA) (P) LTD. V. DCIT (16 TAXMANN.COM 192) (DEL)/12 ITR(TRIB.) 748 (DEL)/143 TTJ 201 (DEL ); (II) GLOBAL VANGTEDGE (P) LTD. V. DCIT, 1 ITR (DEL)/37 SOT 1 (DELHI). 3.18 HE SUBMITTED THAT IN THE PRESENT CASE, THE ASSESSEE HAD THE FOLLOWING TRANSACTIONS WITH ITS AES AS DETAILED BELOW:- S. NO. PARTICULARS AMOUNT (RS.) REMARKS 1. IJM CORPORATION 93,67,11,155 WORKS CONTRACT EXPENSES 2. IJM CORPORATION 1,64,87,452 REIMBURSEMENT OF EXPENSES PAID TO IJM CORP. 3. IJM-IJMII JV 54,45,01,543 WORKS CONTRACT EXPENSES 4. IJM-NBCC-VRM JV 1,87,05,776 WORKS CONTRACT EXPENSES 5. IJM-IJMII JV 39,76,26,155 REIMBURSEMENT OF EXPENSES RECEIVED FROM JV 6. IJM-IJMII JV 41,51,82,999 REIMBURSEMENT OF EXPENSES PAID TO JV 3.19 IN RESPECT OF S. NO. L, IJM CORPORATION BERHAD, MAL AYSIA HAD SECURED TWO (2) CONTRACTS, NAMELY (1) MCD PROJECT F ROM MUNICIPAL CORPORATION OF DELHI (2) SAGAR C-4 PROJECT FROM NAT IONAL HIGHWAY AUTHORITY OF INDIA FOR UP-GRADATION OF EXISTING ROA D. THESE CONTRACTS WERE SUB-CONTRACTED TO THE ASSESSEE COMPA NY ON BACK- TO-BACK BASIS BY RETAINING A MARGIN OF 3% OF THE CO NTRACT VALUE. IN RESPECT OF S. NO. 3, IJM-IJMII JV WAS AWARDED TWO C ONTRACTS FROM DELHI METRO RAIL CORPORATION. THE LABOUR COMPONENT OF THIS WORK WAS SUB-CONTRACTED TO THE ASSESSEE WITHOUT RETAININ G ANY MARGIN. IN RESPECT OF S. NO. 4, IJM-NBCC-VRM JV WAS AWARDED CONTRACT ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 14 FROM DELHI METRO RAIL CORPORATION. THE LABOUR COMPO NENT OF THE WORK WAS SUB- CONTRACTED WITHOUT RETAINING ANY MARG IN. IN RESPECT OF REIMBURSEMENT OF EXPENDITURE, IT IS A MATTER OF RECORD THAT NO MARGINS ARE INVOLVED AND THE EXACT AMOUNT OF EXPEND ITURE IS REIMBURSED AND, THEREFORE, NO BENCHMARKING IS REQUI RED. 3.20 HE DREW OUR ATTENTION TO THE FOLLOWING TABULAR CHAR T SHOWING THE SCENARIO AFTER TP ADJUSTMENT IS AS FOLLOWS:- S. NO. PARTICULARS CONTRACT VALUE (DURING THE YEAR) MARGIN RETAINED REVENUE OFFERED BY THE ASSESSEE VALUE OF TP ADJUSTMENT (PROPORTIONATE ADJUSTMENT OF 104.95 CR.) TOTAL VALUE AFTER TP ADJUSTMENT 1. IJM CORP PO-DELHI 98,26,78,976 2,94,80,369 95,31,98,607 65,92,95,900 161,24,94,506 2. IJM-IJMII JV 54,55,01,543 NIL 54,55,01,543 37,72,95,250 92,27,96 ,793 3. IJM-NBC- VRM JV` 1,87,05,776 NIL 1,87,05,776 1,29,08,850 3,16,14,626 3.21 ACCORDING TO THE AR, FROM THE ABOVE, IT IS CLEAR TH AT AFTER TP ADJUSTMENT UNDER SECTION 92CA THE TOTAL VALUE OF TH E REVENUE RECOGNIZED IN THE HANDS OF ASSESSEE EXCEEDED THE TO TAL CONTRACT VALUE RECEIVED BY THE AE. THEREFORE, SUCH EXCESS AD JUSTMENT IS NOT PERMISSIBLE IN THE LIGHT OF JUDICIAL PRECEDENTS CIT ED SUPRA. IN ANY EVENT, THE MARGIN RETAINED BY THE AE IS ONLY 3 0 /0. WHICH IS LESS THAN THE TOLERANCE LIMIT OF 5%. THEREFORE, NO AD JUSTMENT IS REQUIRED UNDER SECTION 92CA OF INCOME-TAX ACT. 3.22 WITHOUT PREJUDICE TO THE ABOVE ARGUMENT THE AR CONT ENDED THAT THE TPO HAD ERRONEOUSLY EXERCISED THE JURISDIC TION AND EXAMINED THE TRANSACTIONS BETWEEN THE ASE AND AE UN DER TRANSFER PRICING REGULATIONS. HE SUBMITTED THAT TH E TPO HAD ERRED IN REJECTING CERTAIN COMPARABLES SELECTED BY IT AND INSTEAD SELECTING INAPPROPRIATE COMPARABLES, WHICH ARE FUNC TIONALLY AND ECONOMICALLY DIFFERENT. THE TPO HAD SCRUTINIZED THE ALLEGED INTERNATIONAL TRANSACTIONS THE ASSESSEE HAD WITH IT S AE BY APPLYING TNMM METHOD TAKING MARGIN AT 24.76 % ON COSTS OF COMPARABLES. WHILE DOING SO, THE TPO HAD SELECTED 1 1 ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 15 COMPARABLES OUT OF WHICH 4 WERE OBJECTED BY THE ASS ESSEE ON THE GROUNDS AS FOLLOWS:- S. NO. NAME OF THE COMPANY FILTER UNDER WHICH COMPANY SHOULD BE REJECTED REASONS FOR REJECTIONS 1. PATEL ENGG. LTD. FUNCTIONALLY DIFFERENT THE APPELLANT SUBMITS THAT THIS COMPANY IS ENGAGED MOSTLY INTO HYDRO POWER. THIS COMPANY TURNOVER AND ORDER BOOK REPRESENTS 60% HYDRO POWER RELATED WORKS. WHEREAS, THE APPELLANT WHO IS ENGAGED IN WORKS CONTRACT MOSTLY INTO ROADS AND BUILDINGS AND CIVIL WORKS. THE NATURE OF THE BUSINESS IS SIGNIFICANTLY DIFFERENT, THIS COMPANY DESERVES TO BE REJECTED AS COMPARABLE. 2. RAHEJA UNIVERSAL LTD. FUNCTIONALLY DIFFERENT AND ECONOMICALLY DIFFERENT. THE COMPANY IS INTO RESIDENTIAL AND COMMERCIAL CONSTRUCTIONS. FURTHER, THE COMPANY EARNED PROFIT WITH THE ABNORMAL OP/COST PERCENTAGE OF 115.01%. THE COMPANY HAS MADE AN ABNORMALLY HIGH PROFIT AND THUS THIS COMPANY SHOULD BE REJECTED AS COMPARABLE. 3. PURVANKAR PROJECTS LTD. FUNCTIONALLY DIFFERENT AND ECONOMICALLY DIFFERENT. THE COMPANY IS INTO RESIDENTIAL AND COMMERCIAL CONSTRUCTIONS. FURTHER, THE COMPANY EARNED PROFIT WITH THE ABNORMAL OP/COST PERCENTAGE OF 58.06%. THE COMPANY HAS MADE AN ABNORMALLY HIGH PROFIT AND THUS THIS COMPANY SHOULD BE REJECTED AS COMPARABLE. 4. PRESTIGE ESTATE PROJECTS LTD. FUNCTIONALLY DIFFERENT THE COMPANY IS INTO REAL ESTATE BUSINESS SUCH AS DEVELOPMENT OF RESIDENTIAL AND COMMERCIAL COMPLEX BY ACQUIRING LANDS OR ON DEVELOPMENT BASIS. THUS, THIS COMPANY SHOULD BE REJECTED AS COMPARABLE. 3.23 IN RESPECT OF S. NO. L ABOVE, HE SUBMITTED THAT THE LINE OF BUSINESS OF M/S. PATEL ENGG. LTD., IS DIFFERENT FRO M THAT OF THE ASSESSEE AS M/S. PATEL ENGG. LTD., IS ENGAGED IN TH E CONSTRUCTION OF DAMS, POWERHOUSE, SURGE CHAMBERS, INTAKE STRUCTU RES, AND HEAD RACE TUNNEL ETC., FOR HYDRO-POWER PROJECTS. IT CLAIMS TO BE A LEADER IN THE HYDRO-POWER SEGMENT WITH A 22 PER CEN T MARKET SHARE. TILL DATE THE COMPANY HAS EXECUTED 30 HYDRO- POWER PROJECTS AND 75 DAM RELATED PROJECTS. PATEL ENGINE ERING ALSO ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 16 OPERATES IN THE IRRIGATION, TRANSPORTATION AND URBA N INFRASTRUCTURE SEGMENTS. IT FOCUSES ON LIFT IRRIGATION PROJECTS A S AN EPC CONTRACTOR, MAINLY IN THE STATE OF ANDHRA PRADESH. IN THE TRANSPORTATION SEGMENT, ITS SCOPE OF WORK INCLUDES CONSTRUCTION OF ROADS, BRIDGES, RAILWAYS AND ROAD TUNNEL. HOWEVER, HYDRO-POWER REMAINS THE LARGEST SEGMENT WITH AROUND 60 PER CENT CONTRIBUTION TO THE ORDER BOOK. WHEREAS, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF ROADS, BUILDINGS AND ME TRO-RAIL WORKS AND EVEN GEOGRAPHICAL LOCATIONS ARE ALSO DIFFERENT AND, THEREFORE, CANNOT BE TAKEN AS COMPARABLES. THE PROFIT MARGINS IN TWO BUSINESSES WILL BE TOTALLY DIFFERENT AND, THEREFORE , IT CANNOT BE TAKEN AS A COMPARABLE CASE. RELIANCE IN THIS REGAR D IS PLACED ON THE DECISION OF E-GAIN COMMUNICATION (P) LTD., VS. ITO (118 TTJ (PUNE) 354) AND VEDARIS TECHNOLOGY (P.) LTD. V. ASS T. CIT [2010] 131 TTJ (DELHI) 309. MOREOVER, THE INFORMATION ABOUT THE COMPARABLE IS NOT AVAILABLE IN THE PUBLIC DOMAIN AN D TPO HAS NOT FURNISHED THE INFORMATION RELIED UPON AND NOT GIVEN OPPORTUNITY TO REBUT THE SAME. THEREFORE, THIS HAS TO BE REJECTED AS A COMPARABLE. 3.24 IN RESPECT OF S. NOS. 2 AND 3 OF THE ABOVE, IT IS S UBMITTED THAT THESE COMPARABLES ARE IN THE BUSINESS OF CONST RUCTION OF RESIDENTIAL AND COMMERCIAL PROPERTIES, WHICH ARE TO TALLY DIFFERENT LINES OF BUSINESS FROM THE ASSESSEE. ON THE SAME RE ASONING AS SUBMITTED IN THE ABOVE PARAGRAPH, BASED ON THE ABOV E JUDICIAL PRECEDENTS CANNOT BE TAKEN AS COMPARABLES. THAT AP ART, BOTH THE COMPARABLES HAVE SHOWN ABNORMAL PROFITS OF 115% AND 58% RESPECTIVELY. THEREFORE, SUCH SUPER-PROFIT COMPANIE S SHOULD BE EXCLUDED AS HELD BY THIS TRIBUNAL IN THE FOLLOWING CASES: A) ADOBE SYSTEMS INDIA PVT. LTD. V. ADDL. CIT 44 SOT 4 9 (DELHI- URO); B) ITO VS SAUNAY JEWELS PVT. LTD. 42 SOT 4 (MUM.-URO); C) MENTOR GRAPHICS 2007-(112)-TTJ-0408-TDEL; D) E-GAIN COMMUNICATIONS VS ITO 118 TTJ 354 (PUNE); ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 17 E) SAPIENT CORPORATION PVT. LTD. VS. DCIT (2012) 15 IT R (TRIB) 285 (DELHI); F) GENISYS INTEGRATING SYSTEMS INDIA PVT. LTD. (15 ITR (TRIB.) 475 (BANGALORE BENCH); G) BRIGADE GLOBAL SERVICES PVT. LTD., HYDERABAD VS. IT O IN ITA NO. 1494/HYD/2010 DATED 26.11.2012. 3.25 HE SUBMITTED THAT THE TPO HAD REJECTED THE LOSS MAK ING COMPARABLES CHOSEN BY THE ASSESSEE AND THUS CONVENI ENTLY PICKED UP ONLY SUPER-PROFIT COMPANIES IN HIS STUDY, WHICH IS AGAINST THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNA L IN THE FOLLOWING CASES:- I) DCIT V. QUARK SYSTEMS (P.) LTD. 38 SOT 307 (CHD.) II) ACIT V. WOCKHARDT LTD. 6 TAXMANN.COM 78 (MUM.; AND III) UCB INDIA (P) LTD. V. ACIT 121 ITD 131 (MUM.) 3.26 IN RESPECT OF S. NO. 4 ABOVE, IT IS SUBMITTED THAT THE COMPARABLE IS IN THE BUSINESS OF REAL ESTATE AND TH EREFORE, THE COMPARABLE IS ENGAGED IN TOTALLY DIFFERENT LINE OF BUSINESS AND CANNOT BE TAKEN AS A VALID COMPARABLE IN VIEW OF TH E RATIO LAID DOWN IN TILE CASES OF E-GAIN COMMUNICATION (P) LTD. , VS. ITO (118 TTJ (PUNE) 354 AND VEDARIS TECHNOLOGY (P.) LTD. V. ACIT 131 TTJ (DEL) 309. IF THE ABOVE FOUR COMPARABLES ARE EXCLUD ED, THE CALCULATION OF THE ALP AS PER TPO IS AS UNDER: SL. NO. NAME OF THE COMPANY SALES (RS. IN CRORES) OP/TC (%) 1. JMC PROJECTS (INDIA) LTD. 915.00 7.90 2. UNITY INFRAPROJECTS LTD. 849.50 13.39 3. KMC CONSTRUCTIONS LTD. 729.90 12.50 4. VALECHA ENGINEERING LTD. 501.20 5.78 5. AHLUWALLA CONTRACTORS 881.24 10.46 6. SOMDATT BUILDERS 597.69 1.31 7. AMR CONSTRUCTIONS 587.25 13.49 ARITHMETIC MEAN 9.26 WHEREAS THE PROFIT SHOWN BY THE ASSESSEE IS AS UNDE R: ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 18 PARTICULARS COMPANY'S ACTUALS NET SALES (REVENUE) 736.88 TOTAL OPERATING INCOME 736.88 TOTAL COST INCL. DEPRECIATION 704.77 TOTAL OPERATING EXPENSES 704.77 OPERA TING PROFIT 32.11 NET COST PLUS MARK UP (%) 4.56% 3.27 HE SUBMITTED THAT THE PROFIT SHOWN BY THE ASSESSEE WITH THE AE IS WITHIN THE TOLERANCE LIMIT OF + OR 5% AND, THEREFORE, NO TP ADJUSTMENT UNDER SEC. 92CA IS REQUIRED. 4. THE LEARNED DR SUBMITTED THAT DURING THE PREVIOUS Y EAR THE ASSESSEE HAD TRANSACTIONS WITH TWO JOINT VENTURES W HO ARE THE RESIDENTS OF INDIA. THE FIRST JOINT VENTURE IS KNO WN AS IJM-IJMII JOINT VENTURE. WITH THIS JOINT VENTURE, THE ASSESSE E HAD TRANSACTIONS FOR A SUM OF RS. 94,31,27,708 (RS. 54, 55,01,543 + 39,76,26,165). IN THIS JOINT VENTURE, THE ASSESSEE HAS A SHARE OF PROFIT OF 40% AND THE ASSESSEES HOLDING COMPANY, N AMELY, IJM CORPORATION, BEHARD, MALAYSIA HAS A 60% PROFIT SHAR E. THE CAPITAL OF THIS JOINT VENTURE WAS CONTRIBUTED IN PROPORTION TO THE CAPITAL OF THE JV PARTNERS. THE ARS CONTENTION IS THAT THIS ENTITY IS NOT AN ASSOCIATED ENTERPRISE, CONSEQUENTLY, THE TRANSACTIO NS WITH JV ARE NOT INTERNATIONAL TRANSACTIONS. THE AR ALSO SUBMIT TED THAT THE EFFECTIVE CONTROL AND MANAGEMENT OF THIS JOINT VENT URE IS IN INDIA. HE SUBMITTED THAT THERE IS NO MERIT IN THE SUBMISSI ONS OF THE AR. THE TRANSACTIONS OF THE ASSESSEE WITH THE JOINT VEN TURE WERE REPORTED AS INTERNATIONAL TRANSACTIONS VOLUNTARILY IN THE 3CEB REPORT BY THE AUDITOR. ON THE BASIS OF THE AUDIT RE PORT, THE TPO HAD DETERMINED THE ARM'S LENGTH PRICE OF THE INTERN ATIONAL TRANSACTIONS. THE JOINT VENTURE IS AN ASSOCIATED E NTERPRISE. THE ASSESSEE'S CASE IS SQUARELY COVERED BY SEC. 92A(1 ) (B) R.W.S. 92A(2).(L) OF THE IT. ACT. SEC. 92A(2)(L) STIPULATE S THAT WHERE ONE ENTERPRISE IS AN ASSOCIATION OF PERSONS AND THE OTH ER ENTERPRISE ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 19 HOLDS NOT LESS THAN 10% OF INTEREST SHALL BE DEEMED TO BE AN ASSOCIATED ENTERPRISE FOR THE PURPOSE OF SEC. 92A(1 )(B) OF THE IT ACT. FURTHER, IN THE JOINT VENTURE, THERE IS A NON -RESIDENT ENTITY, NAMELY, IJM CORPORATION, BERHARD, MALAYSIA. THUS, I N THE TRANSACTION OF THE ASSESSEE WITH THE JOINT VENTURE, THERE IS A NON- RESIDENT. FURTHER, THE ASSESSEE'S CASE ALSO GETS CO VERED BY 92A(1)(B) R.W.S. 92A(2)(A), (B) AND (E) OF THE IT. ACT. THEREFORE, THE AUDITOR HAS RIGHTLY REPORTED THE TRANSACTIONS WITH THE JOINT VENTURE AS INTERNATIONAL TRANSACTIONS. HE RELIED ON THE OR DER OF THE DRP AS WELL AS ASSESSMENT ORDER. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE PRIMARY CONDITION FOR ATTRACTING TRANSF ER PRICING PROVISIONS IS THAT THERE SHOULD BE A TRANSACTION BE TWEEN TWO OR MORE ASSOCIATED ENTERPRISES. SECTION 92A DEFINES TH E TERM 'ASSOCIATED ENTERPRISE'. SECTION 92A(1) PROVIDES TH E BROAD PARAMETERS ON SATISFACTION OF WHICH TWO OR MORE ENT ERPRISES CONSTITUTE ASSOCIATED ENTERPRISES. THESE PARAMETERS ARE PARTICIPATION IN THE MANAGEMENT OR CONTROL OR CAPIT AL OF THE OTHER ENTERPRISE. SUB-SECTION (2) OF SECTION 92A ENLISTS SPECIFIC SITUATIONS WHICH MAKE TWO OR MORE ENTERPRISES ASSOCIATES OF EA CH OTHER FOR THE PURPOSES OF SUB-SECTION (1). 5.1 THE TERM ' INTERNATIONAL TRANSACTION' IS DEFINED IN SECTION 92B(1) AS FOLLOWS: 92B. (1) FOR THE PURPOSES OF THIS SECTION AND SECT IONS 92, 92C, 920 AND 92E, 'INTERNATIONAL TRANSACTION' MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT O R ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 20 ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED O R TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE O R FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MO RE OF SUCH ENTERPRISES. A TRANSACTION BETWEEN ASSOCIATED ENTERPRISES SATISFYING THE PRESCRIBED CRITERIA BECOMES AN INTERNATIONAL TRANSACTION. 5.2 ONE OF THE ESSENTIAL LIMBS/CONSTITUENTS OF AN INTER NATIONAL TRANSACTION IS 'ASSOCIATED ENTERPRISE'. SECTION 92B (2) OUTLINES THE CIRCUMSTANCES UNDER WHICH A TRANSACTION BETWEEN TWO PERSONS WOULD BE DEEMED TO BE BETWEEN ASSOCIATED ENTERPRISE S. SUCH DEEMING FICTION IS IN ADDITION TO THE ONE CREATED U NDER SECTION 92A(2). THE DEEMING FICTION UNDER SECTION 92A(2) AR E LIMITED TO THE PARAMETERS OF MANAGEMENT, CONTROL OR CAPITAL. SECTI ON 92B(2) TRAVELS BEYOND THESE PARAMETERS. 5.3 TRANSACTION BETWEEN AN ENTERPRISE AND A PERSON WHIC H IS NOT AN ASSOCIATED ENTERPRISE UNDER SECTION 92A, MAY BE DEEMED TO BE TRANSACTION BETWEEN ASSOCIATED ENTERPRISES FOR T HE PURPOSES OF SECTION 92B{L) IF THE CONDITIONS CONTAINED IN SECTI ON 92B(2) ARE ATTRACTED. SECTION 92B(2) PROVIDES: '(2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WI TH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, F OR THE PURPOSES OF SUB-SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN R ELATION TO THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELE VANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUC H OTHER PERSON AND THE ASSOCIATED ENTERPRISE. 5.4 SECTION 92B(2) EMBODIES A LEGAL FICTION. IT DEEMS A TRANSACTION TO HAVE BEEN ENTERED INTO BETWEEN TWO A SSOCIATED ENTERPRISES. THOUGH SECTION 92B(2) IS A PART OF SEC TION 92B WITH THE HEADING 'DEFINITION OF INTERNATIONAL TRANSACTION', IT IS TO BE READ ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 21 AS AN EXTENSION OF SECTION 92A(2) AND NOT AS AN EXT ENSION OF SECTION 92B(1). THIS IS FOR THE FOLLOWING REASONS: (A) BOTH SECTION 92A(2) AND 92B(2) DEAL WITH SITUATIONS UNDER WHICH TWO OR MORE PERSONS CONSTITUTE ASSOCIATED ENTERPRISES. (B) SECTION 92B(1) DOES NOT DEFINE THE TERM 'ASSOCIATED ENTERPRISE'. IT DEFINES THE TERM 'INTERNATIONAL TRANSACTION'. THIS DEFINITION PROVIDES THAT THERE C AN BE AN INTERNATIONAL TRANSACTION ONLY BETWEEN TWO OR MO RE ASSOCIATED ENTERPRISES AND NOT OTHERWISE. THEREFORE RECOURSE TO SECTION 92A AND SECTION 92B(2} IS REQUI RED BEFORE REFERRING TO SECTION 92B(1}. (C) SECTION 92B(2} ONLY DEEMS CERTAIN TRANSACTION TO BE 'TRANSACTION BETWEEN ASSOCIATED ENTERPRISES' AND NO T AS 'INTERNATIONAL TRANSACTION BETWEEN TWO ENTERPRIS ES'. 5.5 THERE IS A DIFFERENCE BETWEEN ASSOCIATED ENTERPRI SES DEFINED UNDER SECTION 92A AND TRANSACTION DEEMED TO BE BETWEEN ASSOCIATED ENTERPRISES UNDER SECTION 92B(2}. UNDER SECTION 92A, TWO OR MORE ENTERPRISES ONCE DETERMINED TO BE ASSOC IATED ENTERPRISES REMAIN SO FOR THE ENTIRE FINANCIAL YEAR . THEIR RELATIONSHIP WILL NOT CHANGE FOR DIFFERENT TRANSACT IONS BETWEEN THEM. THEY WILL REMAIN ASSOCIATED ENTERPRISES EVEN IF THEY DO NOT HAVE ANY TRANSACTION DURING THE PREVIOUS YEAR. ON T HE OTHER HAND, A TRANSACTION BETWEEN AN ENTERPRISE AND ANOTHER PER SON CAN BE DEEMED TO BE TRANSACTION BETWEEN ASSOCIATED UNDER S ECTION 92B(2} ONLY IN RESPECT OF TRANSACTIONS SPECIFIED THEREIN A ND NOT OTHERWISE. THIS FICTION IS TRANSACTION SPECIFIC AND DOES NOT A PPLY TO ALL TRANSACTIONS BETWEEN THE ENTERPRISE AND PERSON, ON THE BASIS THAT ONE TRANSACTION ATTRACTS SECTION 92B(2}. 5.6 SECTION 92B(2} WAS ENACTED TO HIT AT THOSE CASES WHERE TWO ASSOCIATED ENTERPRISES INTEND TO HAVE AN INTERNATIO NAL TRANSACTION BUT WANT TO AVOID TRANSFER PRICING PROVISIONS BY IN TERPOSING A THIRD PARTY AS AN INTERMEDIARY. IN SUCH CASES, THE THIRD PARTY ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 22 INTERMEDIARY WILL GENERALLY NOT BE THE ULTIMATE CON SUMER OF THE SERVICES OR GOODS. THE INTERMEDIARY WOULD FACILITAT E THE TRANSFER OF SERVICES OR GOODS FROM ONE ENTERPRISE TO ITS ASSOCI ATE ENTERPRISE WITH NO VALUE ADDITION OR INSIGNIFICANT VALUE ADDIT ION. THE INTERMEDIARY IS USED TO BREAK A TRANSACTION INTO TW O DIFFERENT PARTS, WHICH PARTS WHEN VIEWED IN ISOLATION WOULD N OT SATISFY THE REQUIREMENTS OF SECTION 92A. THE LEGAL FORM OF THE TRANSACTION IN SUCH CIRCUMSTANCES IS IGNORED. THE SUBSTANCE OF THE TRANSACTION IS GIVEN EFFECT TO, NOT BY DISREGARDING THE EXISTENCE OF THE INTERMEDIARY BUT BY DEEMING THE TRANSACTION WITH TH E INTERMEDIARY ITSELF TO BE ONE WITH AN ASSOCIATED ENTERPRISE. 5.7 THE LEGAL FICTION CREATED IN RESPECT OF THE SPECIF IED TRANSACTION CAN BE USED ONLY FOR THE PURPOSE OF EXA MINING WHETHER SUCH TRANSACTION CONSTITUTES AN 'INTERNATIONAL TRAN SACTION' UNDER SECTION 92B(1). IN CASE SECTION 92B(1) IS NOT ATTRA CTED, THE FICTION UNDER SECTION 92B(2) CEASES TO OPERATE. IN OUR OP INION, THE IMPUGNED TRANSACTION BETWEEN THE ASSESSEE AND IJM-I JMII JV AND IJM CORPORATION, BERHARD, MALAYSIA AND IJM-NBCC-VRM (JV) BETWEEN NATIONAL BUILDING CONSTRUCTION CO. LTD., VR M AND THE ASSESSEE DOES NOT FALL UNDER SECTION 92B(2) OF THE IT ACT. THIS IS FOR THE FOLLOWING REASONS. 5.8 THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS ASSESS ED TO INCOME- TAX IN THE STATUS OF DOMESTIC COMPANY AND WHEREAS T HE AES WITH WHOM THE ASSESSEE HAD TRANSACTIONS ARE IJM CORPORAT ION BERHAD, DELHI PROJECT OFFICE (PE IN INDIA), ESTABLISHED THE PLACE OF BUSINESS IN INDIA UNDER THE PROVISIONS OF SEC. 592 OF THE CO MPANIES ACT, 1956 W.E.F. 30 TH MAY, 2005. 5.9 BY VIRTUE OF ITS REGISTRATION UNDER PROVISIONS OF S EC. 92 OF COMPANIES ACT, 1956 AND ITS AFFAIRS ARE MANAGED AND CONTROLLED IN ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 23 INDIA. FURTHER, ONE OF THE DIRECTORS OF THE PRINCIP AL COMPANY IS NOMINATED AS ATTORNEY FOR THE PURPOSE OF UNDERTAKIN G THE CONTRACT AWARDED BY THE MUNICIPAL CORPORATION OF DELHI AND N ATIONAL HIGHWAYS AUTHORITY OF INDIA AND IS EMPOWERED TO MAN AGE AND OPERATE ENTIRE OPERATIONS IN INDIA AND ALL THE DECI SIONS IN RESPECT OF OPERATIONS IN INDIA ARE TAKEN ONLY IN INDIA AND THAT NOMINATED DIRECTOR HAD BEEN RESIDING IN INDIA ONLY. IN OTHER WORDS, CONTROL AND MANAGEMENT OF BRANCH AFFAIRS WERE SITUATED IN I NDIA WITHIN THE MEANING OF SEC. 6(3) (II) OF INCOME-TAX ACT, 1 961. IN THIS CONNECTION, IT IS PERTINENT TO EXTRACT THE OBSERVAT ION MADE BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BANK OF CHINA (IN LIQUIDATION) - 154 ITR 617 VIDE PARA 8: 'PARA 8: UNDER SECTION 6(3) A NON-INDIAN COMPANY IS SAID TO BE RESIDENT IN INDIA IN ANY PREVIOUS YEAR I F DURING THAT YEAR THE CONTROL AND MANAGEMENT OF ITS AFFAIRS IS SITUATED WHOLLY IN INDIA. THE DETERMINAT ION AS TO WHAT PLACE OR PLACES THE CONTROL AND MANAGEMENT OF A PARTICULAR COMPANY IS SITUATED IS ESSENTIALLY A QUESTION OF FACT TO BE DETERMINED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PARTICULAR CASE. A COMPANY CAN BE SIMULTANEOUSLY RESIDENT IN MORE THAN ONE PLACE BUT THE QUESTION IS WHETHER THE CONTROL AND MANAGEMENT IS SITUATED WHOLLY IN INDIA DURING THE RELEVANT PREVIO US YEAR. THE EXPRESSION 'CONTROL AND MANAGEMENT' SIGNIFIES THE CONTROLLING AND DIRECTIVE POWER, THE HEAD AND BRAIN AS IT IS SOMETIMES CALLED AND 'SITUATED' IMPLIES THE FUNCTIONING OF SUCH POWER AT A PARTICUL AR PLACE WITH SOME DEGREE OF PERMANENCE. THE WORD 'WHOLLY' AS USED IN SECTION 6(3) WOULD INDICATE THA T SEAT OF SUCH POWER MAY BE DIVIDED BETWEEN TWO DISTINCT A ND SEPARATE PLACES. THE EXPRESSION 'CONTROL AND MANAGEMENT' MEANS DE FACTO CONTROL AND MANAGEMENT AND NOT MERELY THE RIGHT OR POWER TO CONTROL AND MANAGE. IN ORDER TO HOLD THAT A NON-INDIAN COMPANY IS RESIDENT IN INDIA DURING ANY PREVIOUS YEAR, IT MUST BE ESTABLISHED THAT SUCH COMPANY DE FACTO CONTROLS AND MANAGES ITS AFFAIRS IN INDIA. THE PRINCIPLES ARE BY NOW WELL SETTLED. ' 5.10 VIDE PARAGRAPH 9 OF THE CITED JUDGMENT, THE CALCUTT A HIGH COURT HAS CLARIFIED THAT THE WORD 'AFFAIRS' MEANS A FFAIRS WHICH ARE ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 24 RELEVANT FOR THE PURPOSE OF THE ACT AND WHICH HAVE SOME RELATION TO THE INCOME SOUGHT TO BE ASSESSED. IT IS NOT THE BARE POSSESSION OF POWERS BY THE DIRECTORS, BUT THEIR TAKING PART I N OR CONTROLLING THE AFFAIRS RELATING TO THE TRADING, THAT IS OF IMP ORTANCE IN DETERMINING THE QUESTION OF THE PLACE WHERE THE CON TROL IS EXERCISE. THEY MUST EXERCISE THEIR POWER OF CONTROL IN RELATI ON TO BUSINESS OR ACTIVITY WHEREFROM THE PROFIT IS DERIVE D. ( SEE - EGYPTIAN HOTELS LTD. V. MITCHELL [1915 ) 6 TC 542 ( HL.). THE POWER OF ATTORNEY EXECUTED BY THE PRINCIPAL COMPANY IN FAVOUR OF THE INDIAN- RESIDENT DIRECTOR TO MANAGE THE BRANCH OPERATIONS I N INDIA CLEARLY GOES TO ESTABLISH BEYOND ANY PALE OF DOUBT THE FACT THAT THE ENTIRE CONTROL AND MANAGEMENT IN RELATION TO OPERATIONS IN INDIA IS SITUATED IN INDIA ONLY. THEREFORE, THE PE SHOULD UN DISPUTEDLY BE TREATED AS RESIDENT IN INDIA. 5.11 MOREOVER, UNDER THE PROVISIONS OF DTAA WITH MALAYSI A, PE IS TREATED AS A SEPARATE LEGAL ENTITY, INDEPENDENT OF ITS FOREIGN PRINCIPAL ENTERPRISE. FURTHER, ARTICLE 24 OF THE DT AA CONTAINS A NON-DISCRIMINATION PROVISION. IT PROHIBITS A CONTRA CTING STATE FROM MAKING ANY DISCRIMINATION IN THE MATTER OF TAXATION BETWEEN ITS OWN NATIONAL AND A NATIONAL OF THE OTHER CONTRACTIN G STATE, WHO ARE PLACED IN SIMILAR CIRCUMSTANCES. IN OTHER WORDS , A CONTRACTING STATE IS OBLIGED TO PROVIDE THE SAME TAX TREATMENT TO A NATIONAL OF THE OTHER CONTRACTING STATE AS IT WOULD GIVE TO ITS OWN NATIONALS. ARTICLE 3(H) OF THE DTAA DEFINES THE TERM 'NATIONAL ' TO INCLUDE BOTH-NATURAL PERSONS AND ARTIFICIAL PERSONS, SUCH A S COMPANIES, ETC. THEREFORE, PE SHOULD BE TREATED AS RESIDENT IN INDIA INASMUCH AS THE BUSINESS PROFITS ATTRIBUTABLE TO PE ARE TAXA BLE IN INDIA AND ALL BUSINESS DECISIONS RELATING TO PE ARE ENTERED A ND CONCLUDED IN INDIA. IN OTHER WORDS, THE CONTROL AND MANAGEMENT O F THE AFFAIRS OF PE ARE SITUATED IN INDIA AND THEREFORE, THE PE SHOU LD BE TREATED AS RESIDENT IN INDIA, TREATING PE OTHERWISE AMOUNTS TO VIOLATION OF ARTICLE 24 OF DTAA WITH MALAYSIA. ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 25 5.12 THE SPECIAL BENCH OF TRIBUNAL AHMEDABAD IN THE CASE OF RAJEEV SURESHBHAI GAJWANI V. ASSTT. COMMISSIONER OF INCOME-TAX, CIRCIE-6, BARODA (129 ITD 145) (AHD.) (SB) ALSO LAI D DOWN THE SAME PROPOSITION OF LAW. 5.13 IJM-IJMII JV (JOINT VENTURE BETWEEN THE ASSESSEE AN D IJM CORPORATION BERHAD, MALAYSIA AND IJM-NBCC-VRM (JOIN T VENTURE BETWEEN NATIONAL BUILDING CONSTRUCTION CO. LTD., VR M AND THE ASSESSEE) ARE ALSO RESIDENTS. THESE JOINT VENTURES ARE FORMED IN INDIA BY AN AGREEMENT BETWEEN THE RESPECTIVE PARTIE S AND ASSESSED IN THE STATUS OF AOP. IN ORDER TO DETERMIN E THE RESIDENTIAL STATUS OF AOPS, ONE HAS TO REFER TO THE DEFINITION GIVEN UNDER SUB-SECTION (2) OF SECTION 6 OF INCOME-TAX AC T, 1961, WHICH READS AS UNDER: '6. RESIDENCE IN INDIA. ---FOR THE PURPOSE OF THIS ACT. ... (2) A HINDU UNDIVIDED FAMILY, FIRM OR OTHER ASSOCIA TION OF PERSONS IS SAID TO BE RESIDENT IN INDIA IN ANY PREVIOUS YEAR IN EVERY CASE EXCEPT WHERE DURING THA T YEAR THE CONTROL AND MANAGEMENT OF ITS AFFAIRS IS SITUATED WHOLLY OUTSIDE INDIA.' 5.14 AS MAY BE SEEN FROM THE ABOVE, THE NORMAL PRESUMPTI ON IS THAT AN AOP WILL HAVE TO BE CONSIDERED AS A RESIDEN T UNLESS ITS CONTROL AND MANAGEMENT ARE ONLY SITUATED OUTSIDE IN DIA. THE REVENUE HAS NOT BROUGHT ANY EVIDENCE ON RECORD SUGG ESTING THAT THESE AOPS ARE CONTROLLED FROM MALAYSIA. WHEREAS TH E ASSESSEE LED THE CONCLUSIVE EVIDENCE ON RECORD TO SAY THAT THE A OPS ARE RESIDENTS IN INDIA IN THE FORM OF AGREEMENTS ENTERE D INTO BY RESPECTIVE PARTIES AND ALSO THE POWER OF ATTORNEYS EXECUTED IN FAVOUR OF ONE OF THE RESIDENT DIRECTORS IN INDIA BY THE FOREIGN PRINCIPAL OFFICE. THIS REMAINS UNCONTROVERTED. 5.15 THE PROVISIONS OF SEC. 6(2) OF INCOME-TAX ACT, 1961 PLACE AOPS IN THE SAME CATEGORY AS 'HINDU UNDIVIDED FAMIL Y (HUF), ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 26 FIRM' FOR THE PURPOSE OF DETERMINING THE RESIDENTIA L STATUS. IN THE CASE OF PARTNERSHIP, IT IS SETTLED BY HON'BLE SUPRE ME COURT IN THE CASE OF ERIN ESTATE, GALAH, CEYLON V. CIT (1958) 34 ITR 1 THAT THE CONTROL AND MANAGEMENT OF ITS AFFAIRS MEANS THE DE FACTO CONTROL AND NOT THE DE JURE AND REFERS TO CONTROLLING AND DIRECTIVE POWER OFTEN DESCRIBED AS 'HEAD AND BRAIN'. 5.16 IN THE PRESENT CASE, ALL THE DECISIONS RELATING TO THE AFFAIRS OF THE JOINT VENTURE ARE TAKEN IN INDIA AND THE BUSINE SS IS EXECUTED IN INDIA THROUGH A JOINT VENTURE AGREEMENT IN INDIA . INDISPUTABLY, JOINT VENTURES ARE RESIDENTS IN INDIA. EVEN OTHERWI SE, CLAUSE 3 OF ARTICLE 4 OF MALAYSIA PROVIDES THAT A PERSON WHICH INCLUDES AOPS ALSO SHALL BE DEEMED TO BE RESIDENTS OF THE STATE I N WHICH ITS PLACE OF EFFECTIVE MANAGEMENT IS SITUATED. ON PERUSAL OF THE JOINT VENTURE AGREEMENTS, IT CAN BE SEEN THAT ALL THE DEC ISIONS RELATING TO THE JOINT VENTURE ARE TAKEN IN INDIA AND, THEREF ORE, THE JVS ARE TO BE TREATED AS 'RESIDENTS' ONLY. 5.17 FURTHER IN THE PRESENT CASE THE TRANSACTIONS ARE BE TWEEN TWO RESIDENT PARTIES AS OUTLINED AT PARAS 3.18 AND 3.19 OF THIS ORDER. THERE IS NO POSSIBILITY OF SHIFTING OF PROF ITS OUTSIDE INDIA OR EROSION OF COUNTRY'S TAX BASE. THEREFORE, ITS TRANS ACTIONS WITH AES ARE OUTSIDE THE PURVIEW OF THE TRANSFER PRICING REG ULATIONS. THIS PE IS ASSESSED TO INCOME-TAX IN INDIA IN THE STATUS OF FOREIGN COMPANY IN RESPECT OF ITS BUSINESS PROFITS. NO SHIFTING OF PROFITS OUTSIDE INDIA OR EROSION OF TAXES IN INDIA IS INVOLVED, THA T IS, THERE IS NO MOTIVE TO SHIFT THE PROFITS OR EVADE THE TAXES IN I NDIA INASMUCH AS ITS BUSINESS PROFITS ARE TAXABLE AS SEPARATE ENTITY IN INDIA. 5.18 IN THE CASE OF DIT (INTERNATIONAL TAXATION) VS MORG AN STANLEY (292 ITR 416), THE HON'BLE SUPREME COURT OBSERVED T HAT 'THE OBJECT BEHIND ENACTMENT OF TRANSFER PRICING REGULAT IONS IS TO PREVENT SHIFTING OF PROFITS OUTSIDE INDIA'. THE EXP LANATORY CIRCULAR ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 27 NO. 14 TO THE FINANCE ACT 2001 HAS STATED THAT THE BASIC INTENTION OF THE TRANSFER PRICING REGULATIONS IS TO PREVENT S HIFTING PROFITS OUT OF INDIA BY MANIPULATING PRICES CHARGED OR PAID IN INTERNATIONAL TRANSACTIONS, THEREBY ERODING THE COUNTRY'S TAX BAS E. THE RELEVANT EXTRACT OF THE SAID CIRCULAR IS AS BELOW: 'THE NEW PROVISION IS INTENDED TO ENSURE THAT PROFITS TAXABLE IN INDIA ARE NOT UNDERSTATED (OR LOSSES ARE NOT OVERSTATED) BY DECLARING LOWER RECEIPTS OR HIGHER OUTGOINGS THAN THOSE WHICH WOULD HAVE BEEN DECLARED BY PERSONS ENTERING INTO SIMILAR TRANSACTIONS WITH UNRELATED PARTIES IN THE SAME OR SIMILAR CIRCUMSTAN CES. THE BASIC INTENTION UNDERLYING THE NEW TRANSFER PRI CING REGULATIONS IS TO PREVENT SHIFTING OUT OF PROFITS B Y MANIPULATING PRICES CHARGED OR PAID IN INTERNATIONA L TRANSACTIONS, THEREBY ERODING THE COUNTRY'S TAX BAS E. THE NEW SECTION 92 IS, THEREFORE, NOT INTENDED TO BE APPLIED IN CASES WHERE THE ADOPTION OF THE ARM'S LE NGTH PRICE DETERMINED UNDER THE REGULATIONS WOULD RESULT IN A DECREASE IN THE OVERALL TAX INCIDENCE IN INDIA IN RESPECT OF THE PARTIES INVOLVED IN THE INTERNATIONA L TRANSACTION.' EVEN AS PER THE CBDT CIRCULAR (CIRCULAR NO. 12/2001 , DATED 23.08.2001), THE INTENTION UNDERLYING THE PROVISION IS TO PREVENT AVOIDANCE OF TAX BY SHIFTIN G TAXABLE INCOME TO A JURISDICTION OUTSIDE THE INDIA BY AN ASSOCIATE ENTERPRISE CONTROLLING THE PRICES CHARGED IN INTRA-GROUP TRANSACTIONS. HENCE, EROSION OF INDIAN TAX BASE IS ONE OF THE PRIME OBJECTIVES BEHIND INSERTIO N OF NEW TP PROVISIONS. IN THE PRESENT CASE, AS DISCUSSE D ABOVE, THERE IS NO EROSION OF TAX BASE IN INDIA.' 5.19 THE TRIBUNAL IN THE UNDER-MENTIONED CASES HAD HELD THAT WHERE THERE IS NO EROSION OF TAX BASE IN INDIA, THE PROVISION OF TRANSFER PRICING CANNOT BE APPLIED: (A) PHILIPS SOFTWARE CENTRE (P) LTD. VS. ASST. CIT [200 8) (26 SOT 226) (BANGALORE) AND (119 TTJ 721); (B) DRESDNER BANK A.G. VS. ADDL. CIT (108 ITD 375) (11 SOT 158); (C) ITO V. ZYDUS ALTANA HEALTHCARE (P.) LTD. (44 SOT 13 2) (MUM.); ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 28 (D) COTTON NATURALS (I) PVT. LTD., NEW DELHI VS. DCIT, CIRCLE 3(1), NEW DELHI IN ITA NO. 5855/DEL/2012, DATED 08.02.201 3. 5.20 THE PRIMARY CONDITION FOR ATTRACTING TRANSFER PRICI NG PROVISIONS IS THAT THERE SHOULD BE A TRANSACTION BE TWEEN TWO OR MORE AES IN TERMS OF SECTION 92A(1) AND 92A(2) OF T HE ACT. AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE AND THE FINDINGS OF THE DRP, WE ARE OF THE OPINION THAT THE TRANSACTIONS TAKEN PLACE ARE WITH DOMESTIC ENTERPRI SES AND AT LEAST ONE AMONG THE AES ARE NOT NON-RESIDENT. BOTH THE ASSESSEE AND OTHER PARTIES WHICH WHOM THE ASSESSEE ENTERED I NTO TRANSACTIONS ARE THE RESIDENTS FOR THE PURPOSE OF I NDIAN TAXATION. ANY TRANSACTION BETWEEN THEM WILL NOT CONSTITUTE AN INTERNATIONAL TRANSACTION. THE TRANSACTIONS BETWEEN THE ASSES SEE AND IJMII DO NOT FALL UNDER SECTION 92B(2) OF THE ACT AND SAM E IS THE POSITION IN CASE OF OTHER ENTITIES WITH WHOM ASSESSEE CARRIE D ON THE IMPUGNED TRANSACTIONS. IN OUR OPINION, THE ARGUME NT OF THE DEPARTMENT IS DEVOID OF MERIT. ACCORDINGLY, WE AGR EE WITH THE CONTENTION OF THE ASSESSEE'S COUNSEL ON LEGAL ISSUE AND ALLOW THE LEGAL GROUND RAISED BY THE ASSESSEE. 5.21 SINCE, WE HAVE DECIDED ON THE LEGAL ISSUE IN FAVOUR OF THE ASSESSEE, ON APPLICABILITY OF TRANSFER PRICING ON T HE ASSESSEE, WE REFRAIN FROM GOING INTO THE OTHER GROUNDS RAISED BY THE ASSESSEE ON THE ISSUE OF TRANSFER PRICING AND THESE GROUNDS ARE DISMISSED AS INFRUCTUOUS. 6. IN RESPECT OF OTHER NON-TP ADJUSTMENTS, THE ASSESSI NG OFFICER HAD DISALLOWED THE FOLLOWING ITEMS OF EXPEN DITURE MADE TO SUB-CONTRACTORS: (A) PAYMENTS TO THE SUB-CONTRACTORS AN AMOUNT OF - RS. 2,29,00,000/ - ; (B) DISALLOWANCE OF PAYMENTS MADE TO THE SUB-CONTRACTOR , M/S. MAYTAS INFRA LIMITED - RS. 10,54,21,341/-; ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 29 (C) DISALLOWANCE OF PAYMENTS MADE TO VARIOUS SUB-CONTRA CTORS - RS. 1,86,12,721/-; (D) DISALLOWANCE ON ACCOUNT OF POWER AND FUEL AN AMOUNT OF RS. 19,98,225/-. 6.1 THE LEARNED AR SUBMITTED THAT THE ENTIRE SUB-CONTRA CT PAYMENTS WERE SUBJECTED TO TDS PROVISIONS OF THE AC T. TAX HAS BEEN DEDUCTED AT SOURCE AND REMITTED TO THE GOVERNM ENT WITHIN THE DUE DATE. THE TRIBUNAL IN THE CASE OF ECI ENGIN EERING & CONSTRUCTION CO., LTD., IN ITA NO. 1279/HYD/2010 VI DE ORDER DATED 21.04.2011 HAS HELD VIDE PARAGRAPH 18 OF THE ORDER THAT 'WHERE THE PAYMENTS ARE COVERED BY TDS, THE GENUINE NESS OF THE EXPENDITURE CANNOT BE DOUBTED.' THEREFORE, THE ENTI RE EXPENDITURE SHOULD BE ALLOWED AS A DEDUCTION. 6.2 IN RESPECT OF DISALLOWANCE OF POWER AND FUEL EXPENS ES, IT IS SUBMITTED BY THE LEARNED AR THAT THE ASSESSING OFFI CER HAD NOT BROUGHT ANY EVIDENCE ON RECORD SUGGESTING THAT THE EXPENDITURE HAD NOT BEEN INCURRED BY THE ASSESSEE NOR ANY INCRI MINATING EVIDENCE SUGGESTING INFLATION OF EXPENDITURE WAS FO UND AS A RESULT OF SURVEY OPERATIONS UNDER SECTION 133A OF THE INCO ME-TAX ACT, 1961. THE MERE FACT THAT THE ASSESSEE COULD NOT PRO DUCE THE VOUCHERS AT THE TIME OF ASSESSMENT DOES NOT LEAD TO INFERENCE THAT THE EXPENDITURE IS 'BOGUS' AND, THEREFORE, NO ADDIT ION IS CALLED FOR AS LAID BY THE HON'BLE BOMBAY HIGH COURT IN THE CAS E OF R.B. BANSILAL ABIRCHAND SPG. & WVG. MILLS V. CIT [1970) 75 ITR 260 AND HIGH COURT OF GAUHATI IN THE CASE OF ALUMINIUM INDU STRIES (P.) LTD. V. COMMISSIONER OF INCOME-TAX (1995) 80 TAXMAN 184 FOLLOWED BY THIS TRIBUNAL IN THE CASE OF R. MAHESWA RA NAIDU IN ITA 302/HYD/2011, DATED 30.03.2012. IN THE LIGHT OF THE AFORESAID SUBMISSIONS, IT IS SUBMITTED THAT THIS TRIBUNAL MAY BE PLEASED TO PASS SUCH ORDER OR ORDERS AS MAY BE DEEMED FIT AND PROPER IN THE INTEREST OF ALL CANONS OF FAIR PLAY AND JUSTICE. ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 30 6.3 REGARDING THE DISALLOWANCE OF PAYMENTS MADE TO SUB- CONTRACTORS FOR A SUM OF RS. 10,54,21,341/-, IT WAS SUBMITTED BY LEARNED DR THAT THE ASSESSEE HAD PAID A SUM OF RS. 328.53 CRORES TO VARIOUS SUB-CONTRACTORS. THE ASSESSEE WAS ASKED TO FURNISH THE NAMES AND ADDRESSES OF THE SUB-CONTRACTORS TO WHOM THE WORK OF THE ASSESSEE WAS ENTRUSTED TO. THE ASSESSEE FURNISH ED THE NAMES AND ADDRESSES OF 998 SUB-CONTRACTORS. THE ASSESSING OFFICER HAD SENT LETTERS U/S 133(6) OF THE I T ACT TO ABOUT 750 SUB-CONTRACTORS REQUESTING THEM TO FURNISH THE CONFIRMATION OF BALA NCES IN THEIR BOOKS OF ACCOUNT OF THE ASSESSEE WITH THE SUPPORTIN G EVIDENCES, IF ANY, FOR THE PREVIOUS YEAR. IN RESPONSE, REPLIES WE RE RECEIVED FROM 115 SUB-CONTRACTORS AND IN 31 CASES, THE TRANSACTIO NS OF THE SUB- CONTRACTORS IN THEIR BOOKS OF ACCOUNT DID NOT TALLY WITH THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE TOTAL AMOUNT REFLEC TED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN RESPECT OF 31 PARTIES WAS A SUM OF RS. 42,34,21,336/- WHEREAS, THE SUB-CONTRACTORS HAD REFLECTED A SUM OF RS. 31,79,99,995/- IN THEIR BOOKS OF ACCOUNT . THUS, THERE WAS A DIFFERENCE OF RS. 10,54,21,341/- BETWEEN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE BOOKS OF ACCOUNT OF THE SUB- CONTRACTORS. THE ASSESSEE WAS REQUESTED TO EXPLAIN THE DIFFERENCE BY THE AO. THE ASSESSEE SUBMITTED THAT OUT OF RS. 1 0.54 CRORES, A SUM OF RS. 9,21,54,736/- WAS ATTRIBUTABLE TO MAYTAS INFRA LIMITED. THE ASSESSEE FURTHER SUBMITTED THE DIFFER ENCE AROSE ON ACCOUNT OF ADVANCES WHICH WERE CONSIDERED AS PAYMEN TS BY THE ASSESSEE. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIE W THAT TOTAL CONTRACT AWARDED TO MAYTAS INFRA PVT. LTD WAS FOR A SUM OF RS. 55,55,29,469/- AND DURING THE PREVIOUS YEAR, THE SU B-CONTRACTS WERE EXECUTED BY MAYTAS WAS FOR A SUM OF RS. 16,50, 40,621/-. THE SUB-CONTRACT WORK GIVEN TO MAYTAS WAS FOR LAYIN G OF THE ROADS IN THE STATE OF MADHYA PRADESH WHEREAS, THE A SSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT MAYTAS HAD CARRIED ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 31 OUT TWO WORKS SITUATED IN SAGAR AND TRICHI. THE A SSESSING OFFICER OBSERVED THAT THERE WAS NO EVIDENCE TO ACCEPT THE D IFFERENCE OF RS. 9.21 WAS ON ACCOUNT OF INCOMPLETE INFORMATION FURNI SHED BY MAYTAS INFRA PVT. LTD. DESPITE GIVING ADEQUATE TIME , THE ASSESSEE DID NOT RECONCILE THE DIFFERENCE IN MAYTAS ACCOUNT AND THE TPO DISALLOWED A SUM OF RS. 10,54,21,341/- AS UNPROVED SUB- CONTRACTORS PAYMENTS . 6.4 ACCORDING TO THE DR, THE CONTENTION OF THE ASSESSEE THAT MAYTAS INFRA PVT LTD HAD EXECUTED WORK SITUATED AT 'SAGAR' AND TRICHI BUT HAD FURNISHED A PART OF THE INFORMATION ONLY AND SUCH A PART OF THE INFORMATION HAD LED TO A DISCREPANCY OF RS. 9,21,54,736/-. THE ASSESSEE HAS INFORMATION IN ITS POSSESSION RELATING TO THE WORKS EXECUTED AND BILLS SUBMITTED BY MAYTAS INFRA PVT. LTD. THE ASSESSEE COULD HAVE RECONCILED THE DIFFERENCE BY FURNISHING THE BILLS AND OTHER EVIDENCES IN ITS POS SESSION TO EXPLAIN THE DISCREPANCY IN THE TRANSACTIONS. THE AS SESSEE DID NOT PRODUCE ANY EVIDENCE AND MERELY MADE A SUBMISSION W ITHOUT PRODUCING EVIDENCE BEFORE THE ASSESSING OFFICER. AC CORDINGLY, HE SUBMITTED THAT IN THE ABSENCE OF EVIDENCE, THE SUBM ISSIONS OF THE ASSESSEE CANNOT BE ACCEPTED AND THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER IS TO BE UPHELD. 6.5 REGARDING THE DISALLOWANCE OF PAYMENTS MADE TO SUB- CONTRACTORS FOR A SUM OF RS. 1,86,12,721/-, THE DR SUBMITTED THAT THE ASSESSING OFFICER HAD SENT 750 LETTERS U/S 133( 6) TO VARIOUS SUB-CONTRACTORS AND THE POSTAL AUTHORITIES HAD RETU RNED BACK 221 LETTERS AND NO REPLIES WERE RECEIVED FROM 414 SUB- CONTRACTORS. IN RESPECT OF LETTERS RETURNED UNSERVED, IN 221 CASES, THE ASSESSEE HAD MADE PAYMENTS TO SUB-CONTRACTORS FOR A SUM OF R S. 37,22,54,421/- AND CLAIMED THE SAME AS BUSINESS EXP ENDITURE. THE ASSESSEE WAS DIRECTED TO EXPLAIN THE TRANSACTIO NS IN RESPECT OF LETTERS UNSERVED. THE ASSESSEE SUBMITTED THAT VARIO US WORKS WERE ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 32 EXECUTED AND THE ADDRESSES FURNISHED BY THE ASSESSE E WERE TEMPORARY IN NATURE AND REQUESTED THE ASSESSING OFF ICER TO ADDRESS LETTERS TO PERMANENT ADDRESSES OF THE PAYEE S FROM THE PAN DATA BASE OF THE DEPARTMENT. THE ASSESSING OFFICER HELD THAT THE BASIC BURDEN IS ON THE ASSESSEE AND SUCH A BURDEN I S NOT DISCHARGED. THE ASSESSING OFFICER OBSERVED THAT A P ORTION OF THE EXPENDITURE OUT OF THE LETTERS WHICH WERE RETURNED UN-SERVED WAS NOT GENUINE EXPENDITURE. THE ASSESSING OFFICER DISA LLOWED 5% OF THE SUB-CONTRACT PAYMENTS ATTRIBUTABLE TO 221 LETTE RS AMOUNTING TO RS. 1,86,12,721/- AND THE SAME IS TO BE CONFIRME D. 6.6 REGARDING DISALLOWANCE OF A SUM OF RS. 19,98,225/- OUT OF THE POWER AND FUEL EXPENSES, THE DR SUBMITTED THAT ON VERIFICATION OF THE BOOKS OF ACCOUNT, IT WAS NOTICED BY THE ASSE SSING OFFICER THAT THE EXPENDITURE INCURRED IN RESPECT OF POWER A ND FUEL WAS NOT SUPPORTED WITH PROPER VOUCHERS AND HE DISALLOWED TH E SAME. THE ASSESSING OFFICER MADE THE ADDITION BECAUSE THE ASS ESSEE FAILED IN PRODUCING THE EVIDENCE AND THE SAME IS TO BE SUSTAI NED. 6.7 THE DR FURTHER SUBMITTED THAT DURING THE SURVEY, BL ANK LETTER HEADS STANDING IN THE NAMES OF MARCO ENTERPR ISES,. NEW DELHI AND MACRO ENTERPRISES, NEW DELHI WERE FOUND I N THE OFFICE OF -THE ASSESSEE. THE ASSESSEE HAD PAID A SUM OF RS. 2.29 CRORES TO THESE ENTITIES TOWARDS SUB-CONTRACT CHARGES. LETTER S WERE ADDRESSED BY THE ASSESSING OFFICER TO THESE CONCERN S AND SUCH LETTERS WERE RETURNED BACK BY THE POSTAL AUTHORITIE S. THEREAFTER, THE ASSESSING OFFICER HAS RIGHTLY DIRECTED THE ASSE SSEE TO FURNISH THE CONFIRMATION LETTERS FROM THE SUB-CONTRACTORS T O PROVE THE GENUINENESS OF THE EXPENSES. THE BURDEN IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENDITURE INCURRED B Y IT. THE ASSESSEE DID NOT DISCHARGE THE ONUS CAST UPON IT AN D THE AO HAS RIGHTLY DISALLOWED THE PAYMENT TO SUB-CONTRACTS AS NOT GENUINE. THE ACTION OF THE ASSESSING OFFICER IS TO BE UPHELD . ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 33 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD ON THE ISSUE RELATING TO DISALLOWANCE OF EXP ENDITURE. THERE IS DISALLOWANCE OF PAYMENT MADE TO SUB-CONTRACTORS (I) RS. 2,29,00,000, (II) RS. 10,54,21,341 PAYMENT TO MAY TAS INFRA LTD. AND (III) OTHER SUBCONTRACT PAYMENTS RS. 1,86,12, 721. 7.1 PRIMARILY, THE FIRST PAYMENT OF RS. 2.29 CRORES WAS MADE TO MARCO ENTERPRISES, NEW DELHI. THESE DISALLOWANCES WERE MADE BY THE LOWER AUTHORITIES ON THE REASON THAT THE ASSESS EE NOT PROVED GENUINENESS OF THE PAYMENTS. THE LETTER ADDRESSED TO THIS PARTY WAS RETURNED BACK BY THE POSTAL AUTHORITIES. THE CO NTENTION OF THE ASSESSEES COUNSEL IS THAT THIS AMOUNT WAS SUBJECTE D TO TDS. BEING SO, IT CANNOT BE DISALLOWED. HOWEVER, THE AS SESSEE NOT FULLY DISCHARGED THE BURDEN CAST UPON IT. BEING SO, CONS IDERING THE FACTS OF THE CASE, AS THE ASSESSEE FAILED TO DISCHA RGE THE BURDEN THAT THE EXPENDITURE HAS BEEN LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND MERE PA YMENT BY ITSELF WOULD NOT ENTITLE THE ASSESSEE TO DEDUCTION OF SUCH EXPENDITURE UNLESS THE SAME WAS PROVED TO BE PAID FOR COMMERCIA L CONSIDERATIONS. IT IS FOR THE ASSESSEE TO ADDUCE N ECESSARY EVIDENCE IN THIS REGARD. MERE FACT THAT ON EARLIER OCCASION THE TRIBUNAL HAS ALLOWED SIMILAR CLAIMS IN CASE OF OTHER ASSESSEES, THAT CANNOT BE A GROUND TO ALLOW THE CLAIM IN FULL WITHOUT SATISFYIN G THE NECESSARY CONDITIONS EXISTENT TO ALLOW THE CLAIM IN THE PRESE NT CASE. 7.2 IN THE PRESENT CASE, THE ASSESSEE HAS INCURRED EXPE NDITURE AND CLAIMED AS DEDUCTION. THE CLAIM WAS NOT ALLOWE D BY THE ASSESSING OFFICER OR BY APPELLATE AUTHORITY ON THE REASON THAT THIS PAYMENT IS NOT VERIFIABLE AND THEY DOUBTED THE GENU INENESS OF THE PAYMENTS. 7.3 WITH REGARD TO THE PROPOSITION THAT IT IS FOR THE A SSESSEE TO DISCHARGE WHETHER ANY EXPENDITURE SHOULD BE INCURRE D IN THE ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 34 COURSE OF HIS BUSINESS OR TRADE AND SUCH EXPENDITUR E MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND SUCH EXPENDITURE IS INCURRED, EVEN VOLUNTARILY FOR PROMO TING THE BUSINESS INTEREST AND TO EARN PROFIT, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SUB SECTION (1) OF 37, THOUGH THERE IS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. IT IS ALSO OBSERVED THAT PAYMENT ITSELF NOT ESTABLISHED AND, SECONDLY I T IS NOT THE CASE OF THE ASSESSEE BEFORE THE ASSESSING AUTHORITY THAT THE PARTICULARS OF THE PERSONS TO WHOM THE AMOUNTS WERE PAID COULD BE FURNISHED WITHOUT DETRIMENT TO THE BUSINESS OF THE ASSESSEE. ACCORDING TO THE DR THE PAYMENT IS BASED ON NO EVIDENCE, BUT I S BASED ON IRRELEVANT CONSIDERATIONS. ALLOWANCE OR DISALLOWANC E OF A CLAIM UNDER SECTION 37(1) SHOULD DEPEND UPON EXISTENCE OR OTHERWISE OF THE FOUR CONDITIONS AS FOLLOWS: 1. THE EXPENDITURE IN QUESTION SHOULD NOT BE OF THE NA TURE DESCRIBED UNDER THE SPECIFIC PROVISIONS SS 30 TO 3 6 AND 80VV OF THE ACT( SECTION 80VV WAS OMITTED W.E.F. FR OM 1 ST APRIL 1986) 2. THE EXPENDITURE SHOULD NOT BE OF NATURE OF CAPITAL EXPENDITURE 3. IT SHOULD NOT BE A PERSONAL EXPENDITURE 4. THE EXPENDITURE HAVE BEEN LAID OUT FOR EXPENDED WH OLLY AND EXCLUSIVELY FOR THE PURPOSES BUSINESS OR PROFESSION . 7.4 NOW, WE WILL EXAMINE, WHETHER IN THIS CASE THE ASSE SSEE HAS FULFILLED THE REQUIREMENT AS ENVISAGED BY THE PROVI SIONS OF THE ACT. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SE CTIONS 30 TO 36. SECTION 30 RELATES TO THE ALLOWABILITY OF PAYM ENT LIKE RENT, RATES, TAXES, REPAIRS AND INSURANCE FOR THE PREMISE S USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN THE INSTANT C ASE, THE CLAIM OF THE ASSESSEE DOES NOT RELATE TO THE KIND OF EXPENDI TURE SPECIFIED IN S.30 AND HENCE THAT SECTION IS NOT APPLICABLE. SECT ION 31 RELATES TO ALLOWABILITY OF REPAIRS AND INSURANCE IN RESPECT OF MACHINERY, ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 35 PLANT AND FURNITURE USED FOR THE PURPOSE OF BUSINES S. SIMILARLY, SECTION 32 IS RELATED TO ALLOWABILITY OF DEPRECIATI ON ON ASSETS USED IN BUSINESS. IN THE SAME WAY, WHILE SECTION 32A IS RELATING TO INVESTMENT ALLOWANCE, SECTION 32AB IS RELATING TO I NVESTMENT DEPOSIT ACCOUNT. SECTION 33 DEALS WITH DEVELOPMENT REBATE, WHILE SECTION 33A DEALS WITH DEVELOPMENT ALLOWANCE. SIMI LARLY, SECTION 33AB DEALS WITH TEA DEVELOPMENT ACCOUNT, COFFEE DEV ELOPMENT, RUBBER DEVELOPMENT ACCOUNT, AS AGAINST SECTION 33AB A RELATING TO SITE RESTORATION FUND. SIMILARLY, SECTION 33AC DEALS WITH RESERVES FOR SHIPPING BUSINESS. SECTION 33B RELATES TO REHABILITATION ALLOWANCE AND SECTION 34 DEALS WITH CONDITIONS FOR DEPRECIATION ALLOWANCE AND DEVELOPMENT REBATE. SEC TION 34A DEALS WITH RESTRICTION ON UNABSORBED DEPRECIATION A ND UNABSORBED INVESTMENT ALLOWANCE FOR LIMITED PERIOD IN CASE OF CERTAIN DOMESTIC COMPANIES. SECTION 35 DEALS WITH EXPENDITURE ON SC IENTIFIC RESEARCH. SECTION 35A DEALS WITH EXPENDITURE ON AC QUISITION OF PATENT RIGHT OR COPY RIGHT. SECTION 35AB DEALS WITH EXPENDITURE ON KNOW-HOW. SECTION 35ABB DEALS WITH EXPENDITURE FOR OBTAINING LICENCE TO OPERATE TELECOMMUNICATION SERVICES. SECT ION 35AC DEALS WITH EXPENDITURE ON ELIGIBLE PROJECT OR SCHEME. S ECTION 35AD DEALS WITH DEDUCTION IN RESPECT OF EXPENDITURE ON S PECIFIED BUSINESS. SECTION 35B DEALS WITH EXPORT MARKET DEVE LOPMENT ALLOWANCE. SECTION 35C DEALS WITH AGRICULTURAL DE VELOPMENT ALLOWANCE. SECTION 35CC DEALS WITH RURAL DEVELOPMEN T ALLOWANCE. SECTION 35CCA DEALS WITH EXPENDITURE BY WAY OF PAYM ENT TO ASSOCIATION AND INSTITUTIONS FOR CARRYING OUT RURAL DEVELOPMENT PROGRAMMES. SECTION 35CCB DEALS WITH EXPENDITURE BY WAY OF PAYMENT TO ASSOCIATIONS AND INSTITUTIONS FOR CARRYI NG OUT PROGRAMMES OF CONSERVATION OF NATURAL RESOURCES. SE CTION 35D DEALS WITH AMORTIZATION OF CERTAIN PRELIMINARY EXPE NSES AND 35DD DEALS WITH AMORTIZATION OF EXPENDITURE IN CASE OF A MALGAMATION OR DE-MERGER. SECTION 35DDA DEALS WITH AMORTIZATION O F EXPENDITURE ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 36 INCURRED UNDER VOLUNTARY RETIREMENT SCHEME. SECTIO N 35E DEALS WITH DEDUCTION FOR EXPENDITURE ON PROSPECTING ETC. FOR CERTAIN MINERALS. SECTION 36 DEALS WITH OTHER DEDUCTION IN RESPECT OF PREMIUM PAID, INTEREST, ETC. 7.5 THE CLAIM OF PAYMENT OF SUBCONTRACT BY THE PRESENT ASSESSEE IS NOT DISQUALIFIED FOR DEDUCTION UNDER THE ACT. NO W, COMING TO NEXT QUESTION AS TO WHETHER THE EXPENDITURE IS CAPI TAL EXPENDITURE OR NOT, WE ARE OF THE OPINION THAT THE EXPENDITURE IS NOT A CAPITAL EXPENDITURE SINCE THE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET. 7.6 AS FOR THE THIRD CONDITION AS TO WHETHER THE PAYMEN T IS IN THE NATURE OF PERSONAL EXPENDITURE OR NOT, AGAIN, I N OUR OPINION, THIS IS NOT THE PAYMENT RELATING TO PERSONAL BENEFI T OF ANY EMPLOYEES OR DIRECTORS OF ASSESSEE-COMPANY. BEING SO, IT IS NOT PERSONAL EXPENDITURE. 7.7 NOW, WE HAVE TO SEE WHETHER THE EXPENDITURE IS INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE CASE OF SASSOON J. DAVID & CO. LTD. VS. CIT (118 ITR 261 (S C) WHEREIN HELD THAT THE EXPRESSION WHOLLY AND EXCLUSIVELY USED IN S. 10(2)(XV) DOES NOT MEAN NECESSARILY . ORDINARILY, IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD B E INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY WITHOUT ANY NECESSITY AND IT I S INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASS ESSEE CAN CLAIM DEDUCTION EVEN THOUGH THERE WAS NO COMPELLING NECES SITY TO INCUR SUCH EXPENDITURE. THE FACT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME I N THE WAY OF AN EXPENDITURE BEING ALLOWED BY WAY OF DEDUCTION UNDER SECTION 10(2)(XV), IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY THE LAW. 7.8 CONSIDERING THE ABOVE PROPOSITION, WE FIND THAT THE SAID ENTIRE PAYMENT OF SUBCONTRACT CANNOT BE DISALLOWED AS THERE IS NO ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 37 EVIDENCE FOR SUCH PAYMENT. NOW, THE ISSUE BEFORE US IS WHETHER THE ASSESSEE HAS ESTABLISHED THE PAYMENT OF SUBCONT RACT BY PRODUCING THE NECESSARY EVIDENCE. THE REASON FOR DI SALLOWANCE IS THE LETTER ADDRESSED TO THE SUBCONTRACTORS BY THE A SSESSING OFFICER WERE RETURNED BACK BY THE POSTAL AUTHORITIES. IN TH E PRESENT CASE THE WORK WAS CARRIED ON BY THE ASSESSEE IN THE FINA NCIAL YEAR 2007-08. THE ASSESSING OFFICER STARTED ENQUIRY IN THE LAST QUARTER OF THE YEAR 2012, I.E., AFTER 3 TO 4 YEARS. AT THA T TIME THE SUB- CONTRACTORS MIGHT HAVE CHANGED THEIR PLACE OF BUSIN ESS AND NON- DELIVERY OF LETTERS BY POSTAL AUTHORITIES CANNOT BE A REASON TO FIND FAULT WITH THE ASSESSEE AND TO DISALLOW THE EXPENDI TURE INCURRED BY THE ASSESSEE. 7.9 IN CIT V. SIGMA PAINTS LTD. (1991) 188 ITR 06 (BOM) , THEIR LORDSHIPS OF THE HON'BLE BOMBAY HIGH COURT HELD AND OBSERVED AT PAGES 7 & 8 OF THE REPORTS AS UNDER: ' ..... SHRI PATEL, LEARNED COUNSEL FOR THE RESPON DENT- ASSESSEE, HAS INVITED OUR ATTENTION TO THE FACT THA T THE ASSESSEE HAD APPEARED AS AN INTERVENER BEFORE THE S PECIAL BENCH OF THE TRIBUNAL WHEN IT WAS CONSIDERING THE A PPEALS RELATING TO FRENCH DYES AND CHEMICALS (I.) (P.) LTD . HE HAS FURTHER INVITED OUR ATTENTION TO PARAGRAPHS 24 TO 2 8 OF THE JUDGMENT IN THAT CASE TO SHOW THAT THE ASSESSEE HAD PRODUCED VARIOUS DETAILS AND THE RECORDS MAINTAINED BY THE COMPANY RELATING TO THE SECRET COMMISSION PAYMENTS. VOUCHERS FOR THE AMOUNTS RECEIVED BY THE SALES OFFI CER OR OTHER RESPONSIBLE PERSONS FOR THE PAYMENT OF SECRET COMMISSION WERE AVAILABLE. THE DETAILS OF SALES TRA NSACTIONS ENTERED INTO WITH VARIOUS MILL-COMPANIES, IN RESPEC T OF WHICH SECRET COMMISSION HAD TO BE PAID, WERE AVAILABLE. T HERE WAS A COMPLETE TALLY BETWEEN THE COMMISSION PAID AND TH E EXTENT OF BUSINESS DONE BY THE MILL-COMPANY. DETAIL S WERE ALSO AVAILABLE OF THE EXACT TRANSACTIONS IN RESPECT OF WHICH THE ASSESSEE HAD TO PAY THE SECRET COMMISSION THE ASSESSEE HAD GIVEN A COMPLETE LIST SHOWING THE TURN OVER AND THE AMOUNT OF SECRET COMMISSION PAID FROM YEAR TO Y EAR. THE PERCENTAGE OF SECRET COMMISSION WAS MINIMAL. THE FU LL DETAILS OF PAYMENT ON THE ABOVE BASIS IN RESPECT OF SEVERAL PARTIES WERE AVAILABLE. THEY WERE CORRELATED TO THE TRANSACTIONS WHICH THE ASSESSEE HAD WITH THOSE PERS ONS AND THE PERIOD DURING WHICH THE TRANSACTIONS WERE E NTERED INTO. THE ONLY MISSING ITEM WAS STATED TO BE THE NA MES OF THE PARTICULAR PARTIES TO WHOM THE PAYMENTS WERE MA DE. ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 38 THIS, THE TRIBUNAL HELD, COULD NOT BE SUPPLIED WITH OUT DETRIMENT TO THE BUSINESS OF THE ASSESSEE IN THE VE RY NATURE OF THINGS. SHRI PATEL THEN POINTED OUT THAT, IN PAR AGRAPH 29 OF THE JUDGMENT, THE SPECIAL BENCH OF THE TRIBUNAL NOT ED THAT THE POSITION WAS THE SAME IN THE CASE OF INDOCHEM L TD. AND THAT OF THE ASSESSEE. ON THE ABOVE STATED FACTS, OUR JUDGMENT IN THE CASE OF CIT V. GOODLASS NEROLAC PAINTS LTD. [1991] 188 ITR 1 (INCO ME-TAX REFERENCE NO. 606 OF 1976) DATED AUGUST 21, 1990, S QUARELY APPLIES. ACCORDINGLY, WE AGREE WITH THE TRIBUNAL TH AT ITS CONCLUSION IS BASED ON A FINDING OF FACT ARRIVED AT ON THE BASIS OF GOOD AND COGENT MATERIAL' 7.10 IN THE INSTANT CASE OF THE ASSESSEE-COMPANY TOO, TH E FACTS ARE IDENTICAL WITH THOSE CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SIGMA PAINTS (188 ITR 6). THE PAYMENT VOUCHERS GIVING THE RELEVANT DETAILS, INCLUDING THE NAMES OF THE PAYEES, AND ALSO BEARING THE SIGNATURES OF THE PAYE ES AS RECIPIENTS, HAD BEEN PRODUCED BY THE ASSESSEE-COMPA NY BEFORE THE ASSESSING OFFICER. THE PAYMENT VOUCHERS CONTAINED F ULL DETAILS OF THE NATURE OF TRANSACTION. IN OTHER WORDS, THE DETA ILS OF ALL TRANSACTIONS IN RESPECT OF WHICH THE SUBCONTRACT PA YMENT HAD BEEN PAID BY THE ASSESSEE-COMPANY ARE DULY RECORDED IN THE PAYMENT VOUCHERS AND OTHER EVIDENCE. THE ONLY MISSI NG LINK WAS THE ADDRESS OF THE PAYEES, WHICH IT WAS ALL ALONG S UBMITTED AND, HOWEVER, THE LETTERS WRITTEN BY THE ASSESSING OFFIC ER TO THOSE PARTIES WERE RETURNED BY THE POSTAL AUTHORITIES AND THESE THINGS CANNOT JEOPARDISE THE CLAIM OF THE ASSESSEE-COMPANY . 7.11 THE AR SUBMITTED THAT VOUCHERS CLEARLY MENTIONED TH E NATURE OF WORKS CARRIED ON BY THE SUBCONTRACTORS. IN VIEW OF THE ABOVE FACTS, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE GENUINENESS OF THE PAYMENT WAS NOT ESTABLISHED BY THE ASSESSEE. IN OUR OPINIO N, GENUINENESS OF THE PAYMENTS WAS ESTABLISHED BY THE ASSESSEE. ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 39 7.12 WE MAY NOTE AT THE COST REPETITION THAT THE DECISIO N OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. SIGMA PAINTS L TD. (1991) 188 ITR 6 (BORN), CLEARLY SUPPORTS THE CASE OF THE ASSESSEE COMPANY. IN THAT CASE THERE WAS PAYMENT OF SECRET C OMMISSION. THE ASSESSEE COMPANY, IN THAT CASE, HAD PRODUCED VA RIOUS DETAILS AND RECORDS MAINTAINED BY IT RELATING TO COMMISSION PAYMENTS. THE DETAILS OF SALES TRANSACTIONS ENTERED INTO WITH VARIOUS MILL COMPANIES, IN RESPECT OF WHICH SECRET COMMISSION HA D BEEN PAID, WERE PRODUCED BEFORE THE ASSESSING OFFICER ALONG WI TH PAYMENT VOUCHERS. THERE WAS A COMPLETE RECONCILIATION AND T ALLY BETWEEN THE COMMISSION PAID AND THE EXTENT OF BUSINESS DONE BY THE MILL COMPANY. THE PAYMENTS WERE CORRELATED TO THE TRANSA CTIONS WHICH THE ASSESSEE HAD WITH THOSE PERSONS. THE ONLY MISSI NG LINK WAS STATED TO BE THE NAMES OF THE PARTICULAR PARTIES TO WHOM THE PAYMENTS WERE MADE. THIS, THE TRIBUNAL HELD, COULD NOT BE SUPPLIED WITHOUT DETRIMENT TO THE BUSINESS INTEREST S OF THAT ASSESSEE, CONSIDERING THE VERY NATURE OF THINGS. 7.13 THE INITIAL ONUS AND BURDEN OF PROOF WAS ON THE ASS ESSEE. IN THE INSTANT CASE, SUCH INITIAL ONUS AND BURDEN O F PROOF HAS BEEN DULY DISCHARGED BY THE ASSESSEE COMPANY BY PRODUCIN G ITS AUDITED BOOKS OF ACCOUNTS, PAYMENT VOUCHERS-AND OTH ER DOCUMENTS GIVING FULL DETAILS AS TO THE NATURE OF T RANSACTIONS, WHICH NECESSITATED THE PAYMENT OF SUCH SUBCONTRACT WORKS AND THAT THIS WAS AN ACCEPTED NORM AND ESTABLISHED IN T HIS LINE OF BUSINESS AND THAT WITHOUT SUCH PAYMENT, IT WAS NOT POSSIBLE TO SURVIVE IN THIS LINE OF BUSINESS, AS WELL AS THE PR EVALENT TRADE PRACTICE IN THE LINE OF BUSINESS CARRIED ON BY THE ASSESSEE COMPANY ALL ALONG. HOWEVER, IN THIS CASE THE INFLA TING OF EXPENDITURE BY THE ASSESSEE CANNOT BE RULED OUT. C ONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCE OF THE CASE AND CHANC ES OF INFLATING THE EXPENSES BY THE ASSESSEE, TO MEET THE ENDS OF J USTICE, WE ARE INCLINED TO DISALLOW 15% OF THIS PAYMENT. ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 40 7.14 REGARDING PAYMENT TO MAYTAS INFRA LTD. OF RS. 10,54,21,341, THE ASSESSEE FAILED TO RECONCILE THE DIFFERENCE BY FURNISHING THE BILLS AND OTHER EVIDENCES IN ITS POS SESSION TO EXPLAIN THE DISCREPANCY IN THE TRANSACTIONS. BEING SO, AS DISCUSSED IN EARLIER PARAS 7 TO 7.13, WE ARE INCLIN ED TO DISALLOW 15% OF THIS PAYMENT. 7.15 REGARDING THE DISALLOWANCE OF RS. 1,86,12,721 TO OT HER SUBCONTRACT PAYMENTS, THE ASSESSING OFFICER SENT 75 0 LETTERS TO THE SUB CONTRACTORS, OUT OF THIS 221 LETTERS WERE R ETURNED BACK AND NO REPLY FROM 414 SUB CONTRACTORS. THE PAYMENT IN RESPECT OF RETURNED BACK LETTERS CONSISTS PAYMENT OF RS. 37,22 ,54,421. THE ASSESSEE WAS NOT ABLE TO PROVE THE GENUINENESS OF T HE PAYMENT. CONSIDERING THIS, THE ASSESSING OFFICER DISALLOWED ONLY 5% OF RS. 37,22,54,421 WHICH IS VERY REASONABLE. BEING SO, T HIS DISALLOWANCE IS CONFIRMED. 7.16 REGARDING THE DISALLOWANCE OF RS. 19,98,225 TOWARDS POWER AND FUEL EXPENSES, WHICH WAS NOT SUPPORTED BY PROPE R VOUCHERS AND BILLS. BEING SO, AS DISCUSSED IN PARAS 7 TO 7. 13 ABOVE, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 15% OF THI S EXPENDITURE. 8. LEVY OF INTEREST U/S. 234B AND 234D IS CONSEQUENTIA L AND MANDATORY IN NATURE WHICH IS TO BE COMPUTED BY THE ASSESSING OFFICER ACCORDINGLY WHILE PASSING GIVING EFFECT ORD ER TO THIS ORDER. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND AUGUST, 2013. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 22 ND AUGUST, 2013 ITA NO. 1814/HYD/2012 M/S. IJM (INDIA) INFRASTRUCTURE LTD. ============================ 41 COPY FORWARDED TO: 1. M/S. IJM (INDIA) INFRASTRUCTURE LTD., 1 - 89/1, PLOT NOS. 42 & 43, KAVURI HILLS, PHASE-1, MADHAPUR, HYDERABAD-81 . 2. THE ACIT, CIRCLE - 2(1), HYDERABAD. 3. THE DRP, HYDERABAD. 4. THE DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION), HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO