SNC LAVALIN ENGINEERING INDIA P.LTD, MUMBAI V. ASST CIT 8(3), MUMBAI

ITA 287/MUM/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9959 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 23-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 287/MUM/2014 (ASSESSMENT YEAR 2008-09) M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. TRADE STAR, A-WING 2 ND FLOOR, J.B. NAGAR ANDHERI-KURLA ROAD ANDHERI EAST MUMBAI-400 059. PAN NO. AAACR1966M VS. ACIT 8(3) ROOM NO. 204 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI AJIT KUMAR JAIN & SHRI SIDDHESH CHAUGULE DEPARTMENT BY SHRI V. JENARDHA NAN DATE OF HEARING 15.3.2018 DATE OF PRONOUNCEMENT 15.3.2018 O R D E R PER B.R. BASKARAN (AM) :- THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30.10.2013 PASSED BY THE LEARNED CIT(A)-15, MUMBAI AND IT RELATES TO A.Y. 2008-09. THOUGH THE ASSESSEE HAS RAISED MANY GROUND S AND ALSO AN ADDITIONAL GROUND, AT THE TIME OF HEARING, LEARNED AR ADVANCED HIS ARGUMENTS ON THE FOLLOWING THREE ISSUES AND SUBMITTED THAT OT HER GROUNDS ARE ACADEMIC IN NATURE :- (1) WHETHER TP ADJUSTMENT IS REQUIRED TO BE MADE AT THE ENTITY LEVEL OR ONLY TO THE TRANSACTIONS ENTERED BETWEEN ASSOCIATED ENTE RPRISES. (2) WHETHER THE LEARNED CIT(A) WAS JUSTIFIED IN REJECTI NG THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE UNDER RULE 46A. (3) CLAIM FOR DEDUCTION OF FOREIGN EXCHANGE LOSSES ARIS ING ON REVALUATION OF BALANCE AS AT THE YEAR END. M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 2 2. THIRD ISSUE CITED ABOVE HAS BEEN RAISED BY WAY O F ADDITIONAL GROUND OF APPEAL. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ENGINEERING CONSULTANCY SERVICES AND SUPPLY OF EQUIPMENTS. THE ASSESSEE HAS UNDERTAKEN FOLLOWING INTERNATIONAL TRANSACTIONS:- 1. PROVISION OF ENGINEERING SERVICES TO VARIOUS PROJECTS 18,13,99,429 CUP 2 PROVISION OF ENGINEERING SERVICES TO POWER PLANT PROJECTS 85,42,578 CPM 3 AVAILMENT OF ENGINEERING SERVICES 1,42,28,085 CPM 4 AVAILMENT OF LOANS AND ADVANCES 4,34,52,989 - 5 RECOVERY OF EXPENSES 40,59,600 AT COST 6 REIMBURSEMENT OF EXPENSES 3,77,66,694 AT COST TOTAL 28,94,49,374 IN RESPECT OF FIRST ITEM, THE ASSESSEE SELECTED CUP METHOD FOR BENCH MARKING TRANSACTIONS. IN RESPECT OF SECOND AND THIRD ITEMS , THE ASSESSEE ADOPTED COST PLUS METHOD (CPM). THE ASSESSING OFFICER REFERRED THE INTERNATIONAL TRANSACTIONS TO THE TRANSFER PRICING OFFICER FOR DE TERMINING ARMS LENGTH PRICE OF TRANSACTIONS. THE TPO REJECTED THE METHODS ADOPTED BY THE ASSESSEE FOR THE REASONS RECORDED BY HIM AND PREFERRED TO DETERMINE ARMS LENGTH PRICE UNDER TRANSACTIONAL NET MARGIN METHOD (TNMM). THE TPO NOT ICED THAT THE ASSESSEE DID NOT FURNISH SEGMENTAL REPORT OF FINANCIALS. SU BSEQUENTLY THE ASSESSEE FILED UNAUDITED SEGMENTAL REPORTS BEFORE THE TPO, BUT THE SAME WAS REJECTED BY THE TPO. THE TPO SELECTED SEVERAL COMPARABLES AND COMPU TED AVERAGE MARGIN OF COMPARABLES BY ADOPTING OP/TC AT 36.77%. THE TPO AD OPTED THE SAME AS ARMS LENGTH MARGIN AND ACCORDINGLY PROPOSED ADJUST MENT OF ` 15.95 CRORES. BEFORE THE LEARNED CIT(A), THE ASSESSEE FURNISHED A UDITED SEGMENTAL ACCOUNTS AND REQUESTED HIM TO ADMIT THE SAME AS ADDITIONAL E VIDENCE. HOWEVER, THE LEARNED CIT(A) REFUSED TO ADMIT THE AUDITED SEGMENT AL ACCOUNTS AND CONFIRMED THE ADDITION PROPOSED BY TPO. AGGRIEVED, THE ASSESS EE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 3 4. LEARNED AR SUBMITTED THAT THE ASSESSEE DID NOT H AVE AUDITED SEGMENTAL ACCOUNTS WHEN PROCEEDINGS BEFORE TPO WERE GOING ON. SUBSEQUENTLY, THE ASSESSEE PREPARED SEGMENTAL ACCOUNTS AND GOT IT AUD ITED AND PRODUCED THE SAME BEFORE THE LEARNED CIT(A). THE LEARNED AR SUBM ITTED THAT THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SMT. AVAN GIDW ANI (ITA NO. 5138/MUM/2015 DATED 6.4.2016) HAS HELD THAT ADDITIO NAL EVIDENCES ARE VITAL DOCUMENTS WHICH ARE REQUIRED TO BE CONSIDERED IN OR DER TO ADJUDICATE THE ISSUES IN JUDICIOUS MANNER. IT WAS FURTHER HELD THA T THE PRINCIPLE OF AUDI ALTERAM PARTEM I.E. NO MAN SHOULD BE CONDEMNED UNH EARD IS THE BASIC CANON PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, THE COO RDINATE BENCH IN THE ABOVE SAID CASE, ADMITTED THE ADDITIONAL EVIDENCES FURNIS HED BEFORE THE LEARNED CIT(A). THE LEARNED AR SUBMITTED THAT, IN THE INTE REST OF NATURAL JUSTICE, ADDITIONAL EVIDENCES SHOULD HAVE BEEN ADMITTED BY T HE LD CIT(A). ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) MAY BE DIRECTED TO ADMIT ADDITIONAL EVIDENCES AND THE ISSUES MAY BE RESTORED TO HIS FILE FOR ADJU DICATING THE ISSUES AFRESH BY CONSIDERING ADDITIONAL EVIDENCES. 5. THE LEARNED DR, ON THE CONTRARY, SUBMITTED THAT THE ASSESSEE DID NOT FURNISH THESE DOCUMENTS BEFORE THE TPO DURING COURS E OF ASSESSMENT PROCEEDINGS AND IT DID NOT CITE PROPER REASONS BEFO RE THE LEARNED CIT(A) IN TERMS OF RULE 46A OF THE I.T. RULES. HENCE THE LEA RNED CIT(A) WAS CONSTRAINED TO REJECT THE ADDITIONAL EVIDENCES. LEARNED DR SUB MITTED THAT, IN CASE, THE TRIBUNAL ADMITS THESE ADDITIONAL EVIDENCES, THE SAM E MAY BE RESTORED TO THE FILE OF THE TPO FOR EXAMINING IT AFRESH INSTEAD OF RESTORING TO THE FILE OF LD CIT(A). 6. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. WE NOTICED THAT THE ASSESSEE HAS NOT PREPARED SEGMENTA L ACCOUNTS INITIALLY AND HENCE IT COULD FURNISH ONLY UNAUDITED SEGMENTAL ACC OUNTS BEFORE TPO. HENCE THE TPO HAS REJECTED THE SAME DOUBTING ABOUT ITS RE LIABILITY. SUBSEQUENTLY, THE ASSESSEE HAS PREPARED PROPER SEGMENTAL ACCOUNTS AND GOT IT AUDITED AND M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 4 FURNISHED THE SAME BEFORE THE LEARNED CIT(A). WE N OTICE THAT THE LD CIT(A) HAS REFUSED TO ADMIT THE SAME FOR TECHNICAL REASONS. A S HELD BY THE COORDINATE BENCH IN THE CASE OF SMT. AVAN GIDWANI (SUPRA), THE ADDITIONAL EVIDENCES FURNISHED BY THE ASSESSEE IN THE FORM OF AUDITED SE GMENTAL ACCOUNTS MAY BE VITAL DOCUMENTS THAT MAY BE REQUIRED TO ADJUDICATE THE ISSUE IN JUDICIOUS MATTER, PARTICULARLY IN VIEW OF THE FACT THAT THE T PO HAS CHANGED THE METHODOLOGY ALTOGETHER TO DETERMINE THE ALP OF INTE RNATIONAL TRANSACTIONS. ACCORDINGLY, WE ADMIT THE ADDITIONAL EVIDENCES. SIN CE, THE ISSUE IS REQUIRED TO BE EXAMINE AFRESH, AS PER THE PLEA OF LEARNED DR, W E RESTORE THE ISSUE RELATING TO DETERMINATION OF ARMS LENGTH PRICE TO THE FILE OF ASSESSING OFFICER/TPO FOR EXAMINING IT AFRESH BY DULY CONSIDERING THE ADDITIO NAL EVIDENCES FURNISHED BY THE ASSESSEE. AFTER HEARING THE ASSESSEE, THEY MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 7. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO QUESTION WHETHER TP ADJUSTMENT IS REQUIRED TO BE MADE AT ENTITY LEVEL O R TO BE RESTRICTED WITH THE TRANSACTIONS ENTERED BETWEEN AE. THE LEARNED AR SU BMITTED THAT THE ASSESSEE HAD RAISED THIS GROUND BEFORE THE LEARNED CIT(A) ALSO, BUT THE LEARNED CIT(A) DID NOT ADJUDICATE THE SAME. HE SUBMITTED TH AT THIS ISSUE HAS SINCE BEEN DECIDED BY HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. M/S. THYSSEN KRUPP INDUSTRIES INDIA P. LTD. (INCOME TAX APPEAL NO. 2201 OF 2013 DATED 2.12.2015), WHEREIN IT WAS HELD THAT THE ADJU STMENTS SHOULD BE RESTRICTED TO TRANSACTIONS BETWEEN THE PARTIES. 8. WE HEARD LEARNED DR ON THIS ISSUE AND PERUSED TH E RECORD. WE NOTICED THAT THE LEARNED CIT(A) HAS NOT ADJUDICATED THIS IS SUE. SINCE WE HAVE RESTORED THE MATTER RELATING TO DETERMINATION OF ARMS LENGT H PRICE TO THE FILE OF THE AO/TPO, WE PREFER TO RESTORE THIS ISSUE ALSO TO THE M. 9. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO CLAIM FOR DEDUCTION OF FOREIGN EXCHANGE LOSS OF ` 41.84 LAKHS ARISING ON REVALUATION OF M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 5 DEBTORS/CREDITORS AND ADVANCES/LOSSES BALANCES AS A T THE YEAR END. THE ASSESSEE HAS RAISED THIS PLEA BY WAY OF ADDITIONAL GROUND. 10. THE LEARNED AR PLACED RELIANCE ON THE DECISION RENDERED BY HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT (1998) 229 ITR 383 (SC) AND ALSO DECISION RENDERED BY HON' BLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS AND SHAREHOLDERS PVT. L TD. (2012) 349 ITR 336 AND SUBMITTED THAT ALL FACTS RELATING TO THE CLAIM ARE AVAILABLE ON RECORD AND ACCORDINGLY PRAYED THAT THE ADDITIONAL GROUND MAY B E ADMITTED. THE LEARNED AR FURTHER SUBMITTED THAT THIS ISSUE IS SQUARELY CO VERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWA RD GOVERNOR INDIA PVT. LTD. (2009) 179 TAXMAN 326. 11. THE LEARNED DR, ON THE CONTRARY, SUBMITTED THAT THIS ISSUE SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR E XAMINING IT AFRESH. THE LEARNED DR SUBMITTED THAT THE ASSESSING OFFICER MAY BE DIRE CTED TO EXAMINE THE ACCOUNTING POLICY FOLLOWED IN THIS REGARD EARLIER Y EARS AND ALSO BE DIRECTED TO VERIFY AS TO WHETHER THE ASSESSEE IS CONSISTENTLY F OLLOWING SAME METHOD OF REVALUING THE DEBTORS AND CREDITORS, LOSS OR ADVANC ES EVERY YEAR. 12. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. S INCE FACTS RELATING TO THE CLAIM OF THE ASSESSEE ARE ALREADY AVAILABLE ON RECO RD, WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. SINCE THE SAME REQU IRES EXAMINATION AT THE END OF THE ASSESSING OFFICER, WE RESTORE THE SAME T O THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE SAME BY D ULY CONSIDERING ACCOUNTING POLICY CONSISTENTLY FOLLOWED BY THE ASSESSEE AND TA KE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 13. NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE PRO VIDED WITH ADEQUATE OPPORTUNITY OF BEING HEARD. M/S. SNC LAVALIN ENGINEERING INDIA PVT. LTD. 6 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BEEN PRONOUNCED IN THE COURT ON 15.3. 2018. SD/- SD/- (SANDEEP GOSAIN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 15/3/2018 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY) PS ITAT, MUMBAI