Durr Systems GmbH, CHENNAI V. ADIT, CHENNAI

ITA 2216/CHNY/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8179 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 29-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-12-2012
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Keywords: Rejection of books of accounts; Transfer pricing; Double taxation relief; Principle of natural justice; International transaction; Permanent establishment; Wholly owned subsidiary

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , . ! '# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.2216/MDS./2012 / ASSESSMENT YEAR : 2008-09 M/S.DURR SYSTEMS GMBH, SRINIVAS TOWERS, II FLOOR, TYNAMPET,CHENNAI 600 018. VS. ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION-II, CHENNAI-34. [PAN AAACD 4307 Q] ( $% / APPELLANT) ( &'$% /RESPONDENT) / APPELLANT BY : MR.VIKRAM VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR.M.SRINIVASA RAO, CIT DR / DATE OF HEARING : 29 - 0 9 - 201 6 !' / DATE OF PRONOUNCEMENT : 28 - 10 - 2016 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE DIRECTION OF THE DISPUTE RESOLUTION PANEL (DRP), CHENNAI PASS ED U/S.144 R.W.S.92CA OF THE ACT DATED 31.08.2012 OF THE ACT PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS F OR OUR CONSIDERATION. ITA NO. 2216/MDS./2012 :- 2 -: GROUND - 1 AGAINST UPWARD ADJUSTMENT OF RS. 170,42 5,073 TO ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRA NSACTIONS ENTERED WITH THE (SSOCIATED ENTERPRISES (AE) (A) THE DISPUTE RESOLUTION PANEL (DRP) HAS ERRED IN UPHOLDING THE ADDITION OF RS. 170,425,073/- BY WAY OF AN UPWARD ADJUSTMENT TO ARMS LENGTH PRICE (ALP) PROPOSED BY THE TRANSFER PRICING OFFICER (THE TPO) IN RELATION TO INTERNATIONAL TRANSACTIONS INVOLVING ATTRIBUTION OF INCOME FROM SUPERVISION ACTIVITIES TO THE INDIAN PERMANENT ESTABLISHMENT ( INDIAN PE OR APPELLANT) OF DRR SYSTEMS GMBH (DRR GERMANY). (B) DRP FAILED TO APPRECIATE THE FACT THAT THE APPE LLANT CONSTITUTED A DEEMED PE AS PER THE PROVISIONS OF ARTICLE 5(2)(I) OF THE DOUBLE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND GERMANY (DTAA), AND THE EXPENSES INCURRED BY THE H.O DIRECTLY ATTRIBUTABLE TO THE PE IN INDIA WERE MRELY EXTRACTED FROM THE BOOKS OF ACCOUNTS OF THE H.O TO CORRECTLY REFLECT THE PROFIT/LOSS OF THE PE AND AS SUCH THERE ARE NO ACTUAL TRANSACTIONS BETWEEN HEAD OFFICE AND PE IN INDIA. (C) THE ASSESSEE HUMBLY PRAYS THAT THE IMPUGNED PRO POSED ADDITION IS NOT JUSTIFIED AND, HENCE, THE SAME BE DELETED. GROUND-2 AGAINST ATTRIBUTION OF REVENUE ON ACCOUNT OF SUPPLY OF EQUIPMENT ESTIMATED BASIS RS. 17,28,686/- TO THE PE (A) THE AO HAS ERRED IN HOLDING THAT REVENUE ON ACC OUNT OF THE SUPPLY OF EQUIPMENT IS ATTRIBUTABLE TO THE INDIAN PE AND IS T AXABLE IN INDIA ONLY ON THE GROUND THAT THE APPELLANT ENTERED INTO A CONSOLIDAT ED CONTRACT FOR SUPPLY OF EQUIPMENT AND SUPERVISORY SERVICES COMPLETELY IGNOR ING THE PROTOCOL TO THE DTAA BETWEEN INDIA AND GERMANY WHICH SPECIFICALLY D EALS WITH THE ISSUE. (B) THE AO ALSO ERRED IN COMPUTING THE PROFIT FROM SUPPLY OF EQUIPMENT ON ESTIMATED BASIS ON A SUBJECTIVE BASIS WITHOUT TAKIN G INTO CONSIDERING THE ACTUAL FINANCIAL RESULT OF THE OPERATION OF THE CON TRACT. (C) THE ASSESSEE HUMBLY PRAYS THAT THE IMPUGNED PRO POSED ADDITION IS NOT JUSTIFIED AND, HENCE, THE SAME BE DELETED. GROUND -3 AGAINST REJECTION OF BOOKS OF ACCOUNTS (A) AO ERRED IN REJECTING THE BOOKS OF ACCOUNT OF T HE APPELLANT BY UNILATERALLY APPLYING A DEEMED PROFIT MARGIN @ 3.5% OF THE TOTAL REVENUE ON BASELESS ASSUMPTIONS AND WITHOUT UNDERSTANDING FACTS OF THE CASE. (B) THE ASSESSEE HUMBLY PRAYS THAT THE IMPUGNED PRO POSED ADDITION IS NOT JUSTIFIED AND, HENCE, THE SAME BE DELETED ITA NO. 2216/MDS./2012 :- 3 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT M/S.DURR SYSTEMS GMBH (DURR GERMANY),, A COMPANY INCORPORATED UNDER THE LAWS OF GERMANY, IS A WHOLLY OWNED SUBSIDIARY OF DUR AKTIENGESSELSCHAFT, STUTTGA RT. THE COMPANY DURR GERMANY SERVES THE MARKET WITH TWO DIVISIONS NAMELY (1) PAINT AND ASSEMBLY DIVISION AND (II) MEASURING AND PROCESS SY STEM DIVISION. THE PAINT AND ASSEMBLY DIVISION OFFERS PRODUCTION AND PAINT F INISHING TECHNOLOGY MAINLY FOR AUTOMOTIVE BODY SHELLS. THE MEASURING AN D PROCESS SYSTEMS DIVISION PRODUCE MACHINES AND SYSTEMS THAT ARE USED IN ENGINE AND DRIVE CONSTRUCTION AS WELL AS FINAL ASSEMBLY. SYSTEMS GMB H HAS ENTERED INTO A CONTRACT WITH M/S ROTEM, KOREA FOR THE SUPPLY OF EQ UIPMENT ARID CONVEYOR SYSTEM FOR PAINS HOP OF M/S HYUNDAI MOTORS INDIA LI MITED II PLANT, THE SAID CONTRACT COVERS THE FOLLOWING. 1) SUPPLY OF EQUIPMENT FOR PAINT SHOP AT HYUNDAI MO TORS INDIA LTD, CHENNAI (2) PROVIDING SUPERVISORY ACTIVITIES IN RELATION TO INSTALLATION, ERECTION AND COMMISSIONING OF THE SAID EQUIPMENT. THE PLACE OF EXECUTION OF THE PROJECT IS AT THE IND USTRIAL PREMISES OF M/S HYUNDAI MOTRS INDIA LIMITED, CHENNAI, INDIA SINCE T HE ON-SITE ION OF THE PROJECT TOOK PLACE IN INDIA FOR MORE THAN 6 MONTHS, AS PER DTAA, A PERMANENT ESTABLISHMENT OF DURR GERMANY (HEREINAFTE R REFERRED AS ASSESSEE COMPANY) HAS BEEN CONSTITUTED IN INDIA. 3.1 IN FORM 3CEB, THE ASSESSEE COMPANY HAS DECLARE D THAT THE CHARGES FOR THE SUPERVISORY SERVICES PROVIDED BY THE ASSESS EE INVOLVED INTERNATIONAL TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES CALLING FOR EXAMINATION OF THE TRANSACTION FROM THE TRANSFER PRICING ANGLE. THEREF ORE, THE CASE WAS REFERRED ITA NO. 2216/MDS./2012 :- 4 -: TO THE TRANSFER PRICING OFFICER, CHENNAI FOR DETERM INATION OF THE ARMS LENGTH PRICE OF THE TRANSACTION AFTER OBTAINING APPROVAL O F THE DIRECTOR OF INTERNATIONAL TAXATION CHENNAI. THE TRANSFER PRICIN G OFFICER PASSED THE ORDER ON 19TH OCTOBER 2011, COPIES OF WHICH HAD BEEN DULY FORWARDED TO THE ASSESSING OFFICER AND THE ASSESSEE. AS THE TOTAL IN COME OF THE ASSESSEE COMPANY INVOLVES THE INCOME FROM THE CHARGES PAID F OR SUPERVISORY SERVICES RENDERED WHICH INVOLVES INTERNATIONAL TRANSACTION, THE ASSESSMENT ORDER IN THIS CASE IS TO BE PASSED IN CONFORMITY WITH THE AR MS LENGTH PRICE AS DETERMINED BY THE.T.P.O. THE ASSESSEE COMPANY DISC LOSED THE FOLLOWING TRANSACTIONS WITH ASSOCIATED ENTERPRISE IN ITS FORM 3CEB. (A) PAYMENT RECEIVED FROM AE FOR SUPERVISION SERVI CES PROVIDED RS.48077949. (B) ALLOCATION OF EXPENSES INCURRED BY THE ASSOCIA TED ENTERPRISE RS.216820260. REFERENCE MAY BE MADE TO THE ORDER OF THE TRANSFER PRICING OFFICER IN THE SAID ISES. IN THE ORDER OF THE TPO DATED 19.10.2011 , THE TRANSFER PRICING OFFICER HAS DETERMINED THE INCOME OF THE ASSESSEE C OMPANY ON THE SUPERVISORY SERVICES RENDERED. THE T.P.O EXAMINED T HE SUBMISSIONS OF THE ASSESSE COMPANY ALONG WITH THE BUDGETED COST AND THE ACTUAL COST STATEMENTS OF THE PROJECT AS PER THE BUDGETED COST, THE REVENUE AND THE COST OF THE PROJECT IS TO BE SHARED BY THE GERMAN COMPANY AND THE ASSESSEE COMPA NY IN THE FOLLOWING RATIO. PARTICULARS DURR GERMAN INDIAN PE TOTAL REVENUE 92.67% 7.33% 100 ITA NO. 2216/MDS./2012 :- 5 -: COST 92.67% 7.33% 100 PROFIT ON COST 3.62% 3.62% PROFIT ON SALES 3.5% 3.5% THE TRANSFER PRICING OFFICER CONSIDERED CPM AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ARMS LENGTH PRICE CF THE ASSESSEE COMPANYS AB TRANSACTIONS. GOING BY THE TERMS OF THE AGREEMENT A ND THE BUDGET COST, STATEMENT OF THE A.E FOR THE PROJECT, THE ALP WAS D ETERMINED BY THE TRANER PRICING OFFICER OF REVENUE AND THE COST ALLOCATED T O THE INDIAN PR AS BLOW REVENUE FOR SUPERVISION ACTIVITIES 842.640 EUROS LESS PROFIT @3.5% ON REVENUE 29492 EUROS COST PROPOSED TO BE ALLOCATED 813.47 EUROS 3.2 THE TRANSFER PRICING OFFICER DETERMINED THE AR MS LENGTH PRICE OF APPORTIONED COST TO INDIAN PE AT EUROS 813.47 EQUIV ALENT: TO RS.4,63,95,186 UNDER CPM AND REQUIRES AN ADJUSTMENT OF RS.17,04,25 ,073/- TO; THE COST APPORTIONED TO THE INDIAN PE. IN CONFORMITY WITH TH E ORDER BY THE TRANSFER PRICING OFFICER, THE INCOME OF THE INDIAN PE RELATE D TO SUPERVISORY CHARGES IS CALCULATED AS BELOW. PAYMENT RECEIVED FROM A13 FOR SUPERVISION SERVICES RS.4,80,77,949 ALP OF APPORTIONED COST TO INDIAN PE RS.4,63,95 ,186 PROFIT FOR INDIAN PE FOR SUPERVISORY SERVICES RS. 1 6,82,763 3.3. ATTRIBUTION OF PROFIT ON SUPPLY OF EQUIPMENT THE ASESSEE COMPANY WAS ASKED TO EXPLAIN THE CONTRA CTUAL TERMS AND THE ACTIVITIES OF THE GERMAN COMPANY IN INDIA. THE ASSE E COMPANY RESPONDED ITA NO. 2216/MDS./2012 :- 6 -: WITH A REPLY DATED 30.11.2011 SUBMITTING THE AGREEM ENT BETWEEN M/S DUN GEM NY AND M/S ROTEM, KOREA, THE SUBMISSION MADE BY THE COMPANY WAS CONSIDERED. BASED ON THE SUBMISSIONS GIVEN BY THE A SSESSEE COMPANY, AND TIE CONTRACTUAL AGREEMENT BETWEEN THE TWO COMPANIES . THE FOLLOWING DETAILS HAVE BEEN INFERRED. A) DURR SYSTEMS GMBH, GERMANY HAS ENTERED INTO THE CONTRACT WITH M/S ROTEM, KOREA ON AN AGREEMENT TO SUPPLY OF EQUIPMENT AND CONVEYOR SYSTEMS FOR PAINT SHOP AT HYUNDAI MOTORS INDIA LIMI TED, CHENNAI AND PROVIDING SUPERVISORY ACTIVITIES IN RELATION TO INS TALLATION, ERECTION AND COMMISSIONING OF THE EQUIPMENT. B) IT IS TO BE MENTIONED HERE THAT DUE TO THE ACTI VITIES OF THE GERMANY COMPANY IN EXTENDED BEYOND THE PERIOD OF SIX MONTHS , THE INDIAN FE IS DEEMED TO BE CONSTITUTED AND THE INCOME ATTRIBUTABL E TO INDIAN PB HAS TO BE TAXED IN INDIA. C) THERE IS ONLY ONE CONTRACTUAL AGREEMENT MADE BE TWEEN DURR SYSTEMS GMBH AND KOREA, WHICH DEALS WITH SUPPLY AND DELIVER Y OF THE EQUIPMENT AND SUPERVISION OF IN ANY INSTALLATION ACTIVITY. THE AS SESSEE COMPANY DOES NOT INVOLVE IN ANY INSTALLATION ACTIVITY. THE INSTALLAT ION PROJECT HAS BEEN HANDLED BY THE WHOLLY OWNED SUBSIDIARY OF THE GERMAN COMPAN Y M/S.DURR SYSTEMS INDIA. THE ASSESSEE COMPANY DOES NOT ANY ROLE IN IN STALLATION PROCESS OTHER THAN BEING A SUPERVISOR OF THE ACTIVITY AND TO CERT IFY THAT IT HAS BEEN EFFECTIVELY INSTALLED. ITA NO. 2216/MDS./2012 :- 7 -: 3.4 TO ELABORATE THE WHOLE SEQUENCE, DURR GERMANY HAS TO SUPPLY AND DELIVER THE EQUIPMENT TO M/S ROTEM, KOREA. M/S DURR INDIA WILL DO THE INSTALLATION. M/S DURR GERMANY HAS TO SUPERVISE THE INSTALLATION. THIS POINT IS RESTATED TO ENSURE THAT DURR GERMANY DOES NOT DO TH E INSTALLATION ACTIVITY AND IT IS PURELY THE ACTIVITY OF THE INDIAN COMPANY . 3.5 DURR GERMANY ENTERED INTO A SINGLE CONTRACT F OR SUPPLY AND SUPERVISION AND THE CONTRACT PRICE IS A CONSOLIDATED ONE AMOUN TING TO US$ FORTY SIX MILLION SEVEN HUNDRED THOUSAND ONLY WHICH IS INCLUS IVE OF SUPERVISION FEE. THE CONTRACT CLEARLY SAYS THAT THE SUPERVISION ACTI VITY IS AN INCLUSIVE ACTIVITY OF SUPPLY OF EQUIPMENTS. 4. FURTHER TPO OBSERVED THAT THE CONTRACT BETWEEN M/S DURR SYSTEMS, GERMANY AND M/S ROTEM IS A SINGLE CONTRACT, WHICH S AYS ABOUT SUPPLY AND DELIVERY OF EQUIPMENT AND SUPERVISORY ACTIVITY. THE SUPERVISORY ACTIVITY IS AN INCLUSIVE ACTIVITY ALONG WITH THE SUPPLY AND DELIVE RY. BOTH ACTIVITIES SHOULD EXIST TOGETHER. THUS THE ACTIVITIES BECOME INDIVISI BLE AND DEPENDENT ON EACH OTHER. THE CONTRACT VALUE WILL BE REALIZED ONLY IF BOTH THE ACTIVITIES WERE PERFORMED. HENCE SUPERVISORY ACTIVITY BECOMES A PAR T OF THE TOTAL ACTIVITY OF THE CONTRACTUAL AGREEMENT. 4.1 AS PER THE PROVISIONS OF PTAA, IF ANY ACTIVITY OF THE FOREIGN COMPANY EXTENDS BEYOND SIX MONTHS PERIOD IN INDIA, THEN A PERMANENT ESTABLISHMENT IS DEEMED TO BE CONSTITUTED, BY THE ACTIVITY OF THE GERMAN COMPANY IN INDIA FOR THE PERIOD MORE THAN SIX MONTHS, A PE IS CONSTI TUTED IN INDIA. THE ACTIVITY OF THE GERMAN COMPANY IS BEING MATERIALIZED THROUGH THE CONTRACTUAL AGREEMENT REFERRED ABOVE WHICH DEALS WITH SUPPLY OF THE EQUIPMENT ALONG WITH TIE SUPERVISORY ACTIVITY. FURTHER, THE NEXUS B ETWEEN THE DURR GERMANY ITA NO. 2216/MDS./2012 :- 8 -: AND M/S ROTEM, KOREA STARTS WITH THE SUPPLY OF THE EQUIPMENT AND ENDS WITH GIVING THE CERTIFICATION OF PROPER INSTALLATION. TH OUGH THE INSTALLATION ACTIVITY IS BEING CARRIED OUT BY M/S DURR INDIA, THE SUPERVI SION OF SUCH INSTALLATION IS BEING CARRIED OUT BY M/S DURR GERMANY AND IT IS THE RESPONSIBILITY OF THE GEMAN COMPANY TO GIVE A SATISFACTORY PROOF FOR PERF ORMANCE. ARTICLE 12-1 OF THE AGREEMENT SAYS THAT THE GERMAN COMPANY IS RESPO NSIBLE FOR THE PERFORMANCE OF EQUIPMENT AFTER ERECTION AND INSTALL ATION UNTIL THE PERFORMANCE. OF SUCH EQUIPMENT IS FULLY PROVEN TO B E SATISFACTORY IN ALL RESPECTS OF THE REQUIREMENTS. THE LINK BETWEEN TWO COMPANIES BEGINS WITH SALE AND SUPPLY AND ENDS WITH THE PAYMENT AFTER THE PERFORMANCE IS PROVEN SATISFACTORY. 4.2 HENCE, BY THE SINGLE, INDIVISIBLE CONTRACT THE GERMAN COMPANY HAS REAL, INTIMATE AND CONTINUOUS RELATION WITH M/S RO TEM, KOREA. AS ALREADY STATED, THE SUPERVISORY ACTIVITY CANNOT BE SINGLED OUT AS AN INDEPENDENT ACTIVITY AND IT HAS TO GO ALONG WITH THE SUPPLY AND DELIVERY OF EQUIPMENT BY THE VIRTUE OF THE CONTRACT THE PE IS BEING CONSTITU TED BECAUSE CF TIE ACTIVITY BEING EXTENDED BEYOND THE PERIOD OF SIX MONTHS. HEN CE THE INCOME EAR D BY THE GERMAN COMPANY ROT ONLY BY SUPERVISORY ACTIVITY BUT ALSO BY OTHER MEANS MENTIONED IN THE CONTRACT HAS TO BE ATTRIBUTE D TO THE INDIAN PE. THE ASSESSEE HAS FURTHER STATED THAT THE PROTOCOL TO TH E DTAA WITH REFERENCE TO ARTICLE 7. IT SAYS IN THE DETERMINATION OF THE PROFITS OF A BUILDING OR CONSTRUCTION, ASSEMBLY OR INSTALLATION PROJECT THERE SHALL BE ATT RIBUTED TO THAT PERMANENT ESTABLISHMENT IN THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHMENT IS SITUATED ONLY THE PROFIT S RESULTING ITA NO. 2216/MDS./2012 :- 9 -: FROM THE ACTIVITIES OF THE PERMANENT ESTABLISHMENT AS SUCH IF MACHINERY OR EQUIPMENT IS DELIVERED FROM THE HEAD O FFICE OR ANOTHER PERMANENT ESTABLISHMENT OF THE ENTERPRISE S ITUATED OUTSIDE THAT CONTRACTING OR A THIRD PERSON SITUATED OUTSIDE THAT CONTRACTING STATE IN CONNECTION WITH THOSE ACTIVITI ES OR INDEPENDENTLY THERE FROM THERE SHALL NOT BE ATTRIBU TED TO THE PROFITS OF THE BUILDING SITE OR CONSTRUCTION, ASSEMBLY OR INSTALLATION PROJECT THE VALUE OF SUCH DELIVERIES. 4.3 FINALLY, THE TPO OBSERVED THAT EXCEPT SIGNING THE CERTIFICATE OF ACCEPTANCE, MIS ROTEM, KOREA DOES NOT HAVE ANY ROLE IN THE SALE, SUPPLY AID DELIVERY OF THE EQUIPMENTS. EVEN, CERTIFICATE OF AC CEPTANCE IS SIGNED BY TWO AUTHORITIES FROM M/S HYURDAI MOTORS INDIA LIMITED A ND IT CLEARLY INDICATES THAT WHEN THE PRODUCT WAS SUPPLIED BY M/S DURR GERM ANY IT WAS INTENDED TO SUPPLY TO M/S HYUNDAI MOTORS INDIA LIMITED. SINCE T HE RISKS WERE BORNE BY M/S DURR GERMANY TILL THE PRODUCT LEAVES THE WAREHO USE AT CHENNAI, THE DELIVERY IS SAID TO BE HAPPENED ONLY IN INDIA. HENC E THE SUBMISSION OF THE ASSESSEE COMPANY IS REJECTED. REGARDING THE ISSUE OF PERCENTAGE OF PROFIT ON SUPP LY AND DELIVERY TO BE ATTRIBUTED TO THE INDIAN PE, A BROAD ANALYSIS WAS D ONE ON THE DETAILS OF BUDGETED COST OF THE ROTEM PROJECT SUBMITTED BY T HE ASSESSEE DURING THE TRANSFER PRICING PROCEEDINGS. PARTICULARS SUPPLY OF EQUIPMENT SUPERVISORY SERVICES TOTAL PERCENTAGE OF CONTRIBUTION BY INDIAN PE SALES REVENUE 347,60,357 27,49,021 3,75,09,377 7:33% ITA NO. 2216/MDS./2012 :- 10 - : COSTS 3,35,45,069 26,52,909 3,61,97,968 7:33% GROSS MARGIN 12,15,298 96,112 13,11,409 7:33% THE PROFIT THAT SHOULD HAVE BEEN ATTRIBUTED TO THE INDIA PE FROM THE PROFIT GAINED FROM SUPPLY AND DELIVERY OF EQUIPMENT BY THE GE MAN COMPANY HAS BEEN DETERMINED AS FOLLOWS REVENUE ATTRIBUTED TO THE HEAD OFFICE IN ROTEM PROJ ECT 1,06,53,130 EUROS (3.5% OF THE TOTAL REVENUE HAS BEEN DETERMINED BY T HE COMPANY AS PROFIT AS PER BUDGETED COST) HENCE 3.5% OF REVENUE TO THE HEAD OFFICE 3,72,860 E UROS (THE CONTRIBUTION OF INDIAN PE IN TOTAL REVENUE OF THE PROJECT IS 7.33%) HENCE 7.33% OF THE PROFIT THAT HAS TO BE ATTRIBUTED TO INDIAN PE 27,331 EUROS FOREIGN EXCHANGE AS ON MARCH 31, 2008 IS 1 EURO =RS .63.25/- PROFIT FOR THE INDIAN PE ON SUPPLY AND DELIVERY OF EQUIPMENT RS.17,28,686/- AGAINST THIS THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP. 5. THE DRP PASSED A CRYPTIC ORDER BY OBSERVING THA T PERUSAL OF TRANSFER PRICING ORDER REVEALS THAT EACH AND EVERY ARGUMENT OF THE ELIGIBLE ASSESSEE HAS BEEN MET IN AN ELABORATE AND SPEAKING FASHION W ITH DETAILED ANALYSIS OF THE ISSUES INVOLVED. CONSIDERING THE NEED FOR ECONO MY OF WORDS AND AVOID REPETITION THE SAME ARGUMENTS ARE NOT REPEATED OR R EPRODUCED HERE. HOWEVER FOR ADEQUATE APPRECIATION OF ANALYSIS THE S AME SHOULD BE REFERRED TO. IT IS SEEN THAT THE GERMAN COMPANY HAS ATTRIBU TED THE SUPERVISION ITA NO. 2216/MDS./2012 :- 11 - : CHARGES TO THE INDIAN PE AS PER THE TERMS OF THE CO NTRACT WITH ROTEM KOREA. CERTAINLY THE ISSUE ARISES AS TO WHY THE COST HAS N OT BEEN ALLOCATED IN LINE WITH THE REVENUE ATTRIBUTION. THERE CANNOT BE TWO O PINIONS THAT THE INDIAN PE IS A LOW RISK BEARING ENTITY AS IT WAS FORCED TO BEAR THE MAXIMUM LOSS ON COST AS THAT OF THE GERMAN COMPANY. APPARENTLY THE ALLOCATION OF COST HAS NOT BEEN DONE APPROPRIATELY. ALSO UNDER THE CIRCUMS TANCES THE ADOPTION OF CPM AS THE MOST APPROPRIATE METHOD CHOSEN BY THE TP O CANNOT BEFAULTED WITH. THERE IS ALSO NO STRENGTH IN THE ARGUMENT OF ELIGIBLE ASSESSEE THAT THE DURR SYSTEMS GERMANY AND THE INDIAN PE ARE IN FACT SINGLE ENTITY AND THE SUPERVISORY ACTIVITIES HAVE BEEN CARRIED OUT AS A S EPARATE PE ONLY BY A DEEMED FRICTION OF LAW. 5.1 FURTHER DRP OBSERVED THAT PERUSAL OF THE DRAFT OF THE PROPOSED ORDER OF ASSESSMENT CLEARLY REVEALS THAT ALL THE ARGUMENT S OF THE ELIGIBLE ASSESSEE BEFORE THE DRP ARE MERE REITERATION AND REPETITION. IT ALSO REVEALS THAT THE AO HAS ALREADY MET IN GREAT DETAIL THROUGH SPEAKING ANALYSIS ALL THE ARGUMENTS OF THE ELIGIBLE ASSESSEE. THEY ARE NOT R EPEATED HERE FOR ECONOMY OF WORDS. THE DRAFT OF THE PROPOSED ORDER OF ASSES SMENT SHOULD BE REFERRED TO POINT NOS.12 TO 38 OF THE DRAFT OF THE PROPOSED ORDER OF ASSESSMENT ARE RELEVANT AND IMPORTANT. 5.2 FINALLY THE DRP CONCLUDED THAT THERE ARE NO VA LID REASONS TO INTERFERE WITH THE DRAFT OF THE PROPOSED ORDER OF ASSESSMENT UNDER CONSIDERATION OF ITA NO. 2216/MDS./2012 :- 12 - : THE TPO OR THE AO. THE AO SHALL FINALIZE THE ASSES SMENT ORDER ACCORDINGLY. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE DIRECTION OF DRP IS VERY CRYPTIC ONE. THE DRP H AS NOT CONSIDERED EVERY POINT OF OBJECTION RAISED BY THE ASSESSEE. IN OUR O PINION THE DRP SHOULD HAVE PASSED A WELL REASONED SPEAKING ORDER AFTER EX AMINED THE ENTIRE FACTS OF THE CASE. IN OUR OPINION, THE DRP BEING THE QUAS I JUDICIAL AUTHORITY SHOULD HAVE PASSED A REASONED ORDER AS HELD BY SUPREME COU RT IN THE CASE OF KRANTI ASSOCIATES P.LTD VS. MASOOD AHMED KHAN [2010 ] 9 SCC 496 WHICH STATUTORILY REQUIRES RECORDING OF REASONS AND REQUI REMENT OF PASSING A REASONED ORDER BY AN AUTHORITY WHETHER ADMINISTRATI VE, QUASI-JUDICIAL OR JUDICIAL, HAD LAID DOWN AS UNDER:- (A) IN INDIA THE JUDICIAL TREND HAS ALWAYS BEEN T O RECORD REASONS, EVEN IN ADMINISTRATIVE DECISIONS, IF SUCH DECISIONS AFFECT ANYONE PREJUDICIALLY. (B) A QUASI-JUDICIAL AUTHORITY MUST RECORD REASON S IN SUPPORT OF ITS CONCLUSIONS. (C) INSISTENCE ON RECORDING OF REASONS IS MEANT TO SERVE THE WIDER PRINCIPLE OF JUSTICE THAT JUSTICE MUST NOT ONLY BE DONE IT MUST ALSO APPEAR TO BE DONE AS WELL. (D) RECORDING OF REASONS ALSO OPERATES AS A VALID RESTRAINT ON ANY POSSIBLE ARBITRARY EXERCISE OF JUDICIAL AND QUASI JUDICIAL O R EVEN ADMINISTRATIVE POWER. ITA NO. 2216/MDS./2012 :- 13 - : (E) REASONS REASSURE THAT DISCRETION HAS BEEN EXER CISED BY THE DECISION MAKER ON RELEVANT GROUNDS AND BY DISREGARDING EXTRA NEOUS CONSIDERATIONS. (F) REASONS HAVE VIRTUALLY BECOMES AS INDISPENSABL E COMPONENT OF A DECISION MAKING PROCESS AS OBSERVING PRINCIPLES OF NATURAL JUSTICE BY JUDICIAL, QUASI-JUDICIAL AND EVEN BY ADMINISTRATIVE BODIES. (G) REASONS FACILITATE THE PROCESS OF JUDICIAL REVI EW BY SUPERIOR COURTS. (H) THE ONGOING JUDICIAL TREND IN ALL COUNTRIES CO MMITTED TO RULE OF LAW AND CONSTITUTIONAL GOVERNANCE IS IN FAVOUR OF REASONED DECISIONS BASED ON RELEVANT FACTS. THI S IS VIRTUALLY THE LIFE BLOOD OF JUDICIAL DECISION MAKING JUSTIFYING THE PR INCIPLE THAT REASON IS THE SOUL OF JUSTICE. (I) JUDICIAL OR EVEN QUASI-JUDICIAL OPINIONS THESE DAYS CAN BE AS DIFFERENT AS THE JUDGES AND AUTHORITIES WHO DELIVER THEM. ALL T HESE DECISIONS SERVE ONE COMMON PURPOSE WHICH IS TO DEMONSTRATE BY REASON THAT THE RELEVANT FACTORS HAVE BEEN OBJECTIVELY CONSIDER ED. THIS IS IMPORTANT FOR SUSTAINING THE LITIGANTS FAITH IN TH E JUSTICE DELIVERY SYSTEM. (J) INSISTENCE ON REASON IS A REQUIREMENT FOR BOTH JUDICIAL ACCOUNTABILITY AND TRANSPARENCY. (K) IF A JUDGE OR A QUASI-JUDICIAL AUTHORITY IS NO T CANDID ENOUGH ABOUT HIS/HER DECISION MAKING PROCESS THEN IT IS IMPOSSIB LE TO KNOW WHETHER THE PERSON DECIDING IS FAITHFUL TO THE DOCTRINE OF PRECEDENT OR TO THE PRINCIPLES OF INCREMENTALISM. ITA NO. 2216/MDS./2012 :- 14 - : (L) REASONS IN SUPPORT OF DECISIONS MUST BE COGENT , CLEAR AND SUCCINCT. A PRETENCE OF REASONS OR RUBBER STAMP REASONS, IS N OT TO BE EQUATED WITH A VALID DECISION MAKING PROCESS. (M) IT CANNOT BE DOUBTED THAT TRANSPARENCY IS THE SINE QUA NON OF RESTRAINT ON ABUSE OF JUDICIAL POWERS. TRANSPARENCY IN DECISION MAKING NOT ONLY MAKES THE JUDGES AND DECISION MAKERS LESS PRONE TO ERRORS BUT ALSO MAKES THEM SUBJECT TO BROADER SCRUTINY.(SE E DAVID SHAPIRO IN DEFENCE OF JUDICIAL CANDOR (1987) 100 HARWARD LAW REVIEW 731-737) (N) SINCE THE REQUIREMENT TO RECORD REASONS EMANAT ES FROM THE BROAD DOCTRINE OF FAIRNESS IN DECISION MAKING, THE SAID R EQUIREMENT IS NOW VIRTUALLY A COMPONENT OF HUMAN RIGHTS AND WAS CONSI DERED PART OF STRASBOURG JURISPRUDENCE. SEE RUIZ TORIJA V. SPAIN [1994] 19 EHRR 553, AT 562 PARA 29 AND ANYA V. UNIVERSITY OF OXFOR D [2001] EWCA CIV 405(CA) WHEREIN THE COURT REFERRED TO ARICLE 6 OF THE EUROPEAN CONVENTION OF HUMAN RIGHTS WHICH REQUIRES, ADEQUAT E AND INTELLIGENT REASONS MUST BE GIVEN FOR JUDICIAL DECISIONS. (O) IN ALL COMMON LAW JURISDICTIONS, JUDGMENTS PLAY A VITAL ROLE IN SETTING UP PRECEDENTS FOR THE FUTURE. THEREFORE, FOR DEVELOPMENT OF LAW, REQUIREMENT OF GIVING REASONS F OR THE DECISION IS OF THE ESSENCE AND IS VIRTUALLY A PART OF DUE PROC ESS. ITA NO. 2216/MDS./2012 :- 15 - : 7. IN VIEW OF THE ABOVE DISCUSSION, WE ARE INCLINE D TO REMIT THE ISSUE IN DISPUTE TO THE FILE OF DRP FOR PASSING A SPEAKING O RDER ON THE ISUSES IN DISPUTE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 28 TH OCTOBER, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) ! / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 28 TH OCTOBER, 2016 K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF