DCIT 13(3)(2), MUMBAI V. TECHNIMONT ICB P.LTD, MUMBAI

ITA 1820/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2980 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 27-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS RUPIDNER BARAR
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K , MUMBAI , , BEFORE SHRI R C SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JU DICIAL MEMBER ITA NO. : 1820 /MUM/20 1 5 (ASSESSMENT YEAR: 20 1 0 - 1 1 ) DCIT 13(3)(2) , R NO. 609, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 VS TE C HNIMONT ICB LTD. TECHNIMO NT ICB HOUSE, CHINCHO L I BUNDER, 504, LINK ROAD, MALAD (WES T), MUMBAI - 400 064 PAN: AAACI 2628 B (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 68/MUM/2015 ARISING OUT OF ITA NO.1820/MUM/2015, AY 2010 - 11 TE C HNIMONT ICB LTD TECHNIMO NT ICB HOUSE, CHINCHO L I BUNDER, 504, LINK ROAD, MALAD (WEST), MUMBAI - 400 064 PAN: AAACI 2628 B VS DCIT 13(3)(2) , R NO. 609, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 ( CROSS OBJECTOR ) (RESPONDENT) ASSESSEE - CROSS OBJECTOR BY : SHRI M P LOHIA REVENUE BY : MRS . RUPIDNER BARAR /DATE OF HEARING : 08 - 0 9 - 201 6 / DATE OF PRONOUNCEMENT : 1 4 - 09 - 2016 ORDER , : PER AMIT SHUKLA , J M: 2 TE C HNIMONT ICB LTD ITA 1820 /MUM/ 201 5 CO NO. 68/MUM/2015 THE AFORESAID APPEAL AND CROSS OBJECTION HAS BEEN FILED BY THE REVENUE AS WELL AS ASSESSEE AGAINST DRPS DIRECTION DATED 10.12.2014 PASSED UNDER SECTION 144C(5) IN PURSUANCE OF WHICH FINAL ASSESSMENT ORDER DATED 31.01.2015 PASSED B Y THE AO UNDER SECTION 143(3) R.W.S. 144C(13). IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUNDS: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DI SPUTE RESOLUTION PANEL WAS JUSTIFIED IN DELETING THE ADDITION OF SUM OF RS.19,05,70,279/ - , BEING THE AMOUNT OF ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER (TPO) ON ACCOUNT OF ARMS LENGTH PRICE RELATED TO INTERNATIONAL TRANSACTIONS, WITHOUT APPRECIATIN G THE FACTS THAT THE SEGMENTAL RESULT WORKED OUT BY THE TPO ARE MORE AUTHENTIC AND PRECISE THAN THAT SUBMITTED BY THE ASSESSEE? 2. THE APPELLANT PRAYS THAT THE DIRECTIONS OF THE DRP - III ON THE ABOVE GROUND BE SET ASIDE. 2. BRIEF FACTS AND BACKGROUND O F THE CASE ARE THAT, THE ASSESSEE IS ENGAGED IN EXECUTION OF ENGINEERING PROCUREMENT AND CONSTRUCTION CONTRACTS (EPC CONTRACTS) AND ELECTRICAL AND INSTRUMENTATION CONTRACTS (E&I CONTRACTS). IT HAS UNDERTAKEN THE FOLLOWING INTERNATIONAL TRANSACTIONS WIT H ITS ASSOCIATED ENTERPRISES (AES) DURING AY 2010 - 11: - A. EXECUTION OF EPC PROJECTS; B. E&I WORK; C. PROVISION OF PROJECT SERVICES; D. REIMBURSEMENT OF EXPENSES; E. RECOVERY OF EXPENSES; F. RECEIPT OF DIVIDEND 3 TE C HNIMONT ICB LTD ITA 1820 /MUM/ 201 5 CO NO. 68/MUM/2015 FOR THE PURPOSE OF BENCHMARKING THE AF ORESAID TRANSACTIONS, BASED ON THE FUNCTIONS, ASSETS AND RISK ANALYSIS (FAR ANALYSIS), TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS ADOPTED AS THE MOST APPROPRIATE METHOD (MAM) , WHEREIN THE OPERATING MARGIN (OPERATING PROFIT/OPERATING COST) OF 7.81% WA S DISCLOSED BY THE ASSESSEE FROM ITS AE CONTRACTS (BASED ON SEGMENTAL FINANCIALS) WHICH WAS COMPARED WITH THE MARGIN S OF EXTERNAL COMPARABLES ARRIVED AT 7.64% AND HENCE IT WAS REPORTED TO BE AT ARMS LENGTH. HOWEVER, WHILE PASSING THE TRANSFER PRICING ORDE R THE TRANSFER PRICING OFFICER (TPO) HAS COMPUTED MARGIN OF THE ASSESSEE AT ENTITY LEVEL AT 6.47% INSTEAD OF THE SEGMENTAL APPROACH BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPORT WITHOUT PROVIDING ANY REASON FOR SUCH A REJECTION . THE LD. DRP IN ITS DIRECTIONS HAS RELIED ON THE ITAT ORDER IN ASSESSEES OWN CASE FOR THE AY 2006 - 07 AND AY 2008 - 09 AND HAS DIRECTED THE TPO TO CONSIDER THE SEGMENTAL FINANCIALS SUBMITTED BY THE ASSESSEE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS WITH ITS AES. NOW, AGG RIEVED BY THE ORDER OF THE HONBLE DRP , THE DEPARTMENT HAS FILED THE IMPUGNED APPEAL. 3. FROM THE PERUSAL OF THE IMPUGNED ORDERS AS WELL AS THE GROUNDS TAKEN BY THE DEPARTMENT, IT IS SEEN THAT, THE CONTENTION WHICH HAS BEEN RAISED IN THE GROUNDS IS FACTUA LLY INCORRECT BECAUSE THE DEPARTMENT IN THE SAID GROUND HAD PLACED RELIANCE ON THE SEGMENTAL RESULTS WORKED OUT BY THE TPO CONSIDERING THEM TO BE MORE AUTHENTIC AND PRECISE, WHEREAS, THE TPO WHILE PASSING THE TRANSFER PRICING ORDER HAS APPLIED ENTITY LEVEL BENCHMARK. T HUS, ON THIS GROUND ITSELF, THE APPEAL OF THE REVENUE CAN BE HELD TO BE NOT MAINTAINABLE. 4 TE C HNIMONT ICB LTD ITA 1820 /MUM/ 201 5 CO NO. 68/MUM/2015 IN ANY CASE, WE FIND THAT, THE DRP HAS FOLLOWED THE TRIBUNAL S ORDER IN ASSESSEES OWN CASE FOR THE AY 2006 - 07 AND 2008 - 09 WHILE GRANTING THE RELIEF, WHE REIN, IT HAS BEEN DIRECTED THAT TPO SHOULD CONSIDER THE SEGMENTAL EVIDENCE SUBMITTED BY THE ASSESSEE. SINCE THE OPERATING MARGIN IS BASED ON AUDITED SEGMENTAL FINANCIALS SUBMITTED BY THE ASSESSEE, WHEREIN, THE ASSESSEE HAS EARNED AND SHOWN PROFIT MARGIN AT 7.81% AS AGAINST MARGIN EARNED BY THE COMPARABLE COMPANIES OF 8.3% AS COMPUTED BY THE TPO HIMSELF IN PURSU ANCE OF DRP S DIRECTION WHICH FALLS WITHIN THE ARMS LENGTH PRICE RANGE OF 5%. IN ANY CASE, ALSO EVEN IF ENTITY LEVEL MARGINS OF 6.47% AND THE MARG IN EARNED BY THE COMPARABLE COMPANIES AT 8.3% (AS PER THE DRPS DIRECTION) IS TAKEN INTO CONSIDERATION, THE LD COUNSEL BEFORE US HAS POINTED OUT THAT, THEN ALSO IT FALLS WITHIN THE VARIATION OF +/ - 5%. THUS, ON TH E S E FACT S ALONE , WE HOLD THAT THERE IS NO S UBSTANCE IN THE GROUNDS RAISED BY THE REVENUE AND THEREFORE, SAME ARE DISMISSED. 4. IN THE CROSS OBJECTIONS, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE EARNED AO/ TRANSFER PRICING OFFICER (TPO); SEGMENTAL RESULTS 1 ) ERRED IN BAKING A GROUND THAT SEGMENTAL RESULTS COMPUTED BY THE TPO ARE MORE AUTHENTIC AND PRECISE WITHOUT APPRECIATING THAT THE TPO HAD CONSIDERED ENTITY LEVEL RESULTS AND NOT SEGMENTAL RESULTS OF INTERNATIONAL TRANSACTI ONS OF ASSESSEE FOR DETERMINATION OF ARMS LENGTH PRICE; 2 ) WITHOUT PREJUDICE TO THE ABOVE , FAILED TO APPRECIATE THAT HONBLE DRP HAS RIGHTY DIRECTED TO CONSIDER SEGMENTAL MARGIN OF ASSESSEE FROM INTERNATIONAL TRANSACTION AND NOT ITS ENTITY LEVEL MARGIN; 3 ) WITH OUT PREJUDICE TO THE ABOVE , FAILED TO APPRECIATE THAT THE ISSUE IS ACADEMIC AS INTERNATIONAL TRANSACTION OF ASSESSEE ARE AT ARMS LENGTH EVEN AFTER CONSIDERING ENTITY LEVEL MARGIN OF ASSESSEE WITH CORRECTED MARGIN OF COMPARABLES RECOMPUTED BY THE TPO POST GIVING EFFECT TO THE DRP DIRECTIONS; 5 TE C HNIMONT ICB LTD ITA 1820 /MUM/ 201 5 CO NO. 68/MUM/2015 INCORRECT COMPUTATION OF SEGMENTAL MARGINS OF COMPARABLES 4 ) WITHOUT PREJUDICE TO THE ABOVE , ERRED IN COMPUTING OPERATING MARGINS OF FOLLOWING COMPARABLE COMPANIES: LARSEN AND TOUBRO LTD ; MUKAND ENGINEERS LTD; RELIANCE I NFRASTRUCTURE; SHRIRAM EPC LTD; SUBHASH PROJECTS AND MARKETING LTD; TECHNO ELECTRIC AND ENERGY CO LTD; TATA PROJECTS LTD. THE RESPONDENT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF CROSS OBJECTIONS WITHOUT PREJUDICE TO EACH OTHER AND CRAVES, LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF CROSS OBJECTIONS. 5. IN VIEW OF THE FINDING GIVEN ABOVE, THAT THE GROUND RAISED BY THE DEPARTMENT ITSELF IS INCORRECT AND SEGMENTAL RESULT S ARE TO BE CONSIDERED FOR BENCHMARKING THE ASSESSE ES CASE AS DIRECTED BY THE DRP, FOLLOWING THE ITAT ORDERS IN THE CASE OF THE ASSESSEE , CONSEQUENTLY, THE ISSUES RAISED IN THE CROSS OBJECTION S WILL BECOME PURELY ACADEMIC AND HENCE, THE SAME ARE TREATED AS IN FRUCTUOUS . 6. IN THE RESULT, REVENUES APPEAL AS WELL AS CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER , 2016 . SD/ - SD/ - ( ) ( ) ( R C SHARMA ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DA TE: 14 TH SEPTEMBER , 2016. 6 TE C HNIMONT ICB LTD ITA 1820 /MUM/ 201 5 CO NO. 68/MUM/2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3 ) THE CI T ( APPEAL ) I / CIT(A) CONCERNED___ , MUMBAI. 4 ) THE CIT / PR. C IT - 2 ___ , MUMBAI 5 ) , , / THE D.R. K BENCH, MUMB AI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS