ADIT (IT)-3(2), MUMBAI V. M/s. BOSKALIS INTERNATIONAL-DREDGING INTERNATIONAL CV, MUMBAI

ITA 3950/MUM/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2692 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 13-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 22-06-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJIT KUMAR SINHA
• Keywords: Transfer pricing
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L: MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SHRI R.S. PADVEKAR (JM) ITA NO. 3950/MUM/2006 (ASSTT. YEAR : 2001-02) ADIT(IT)-3(2), MUMBAI, APPELLANT SCINDIA HOUSE, R.NO. 132, 1 ST FLOOR, N M ROAD, MUMBAI - 38 V/S. BOSKALIS INTERNATIONAL - DREDGING RESPONDENT INTERNATIONAL CV C/O. S.R. BATLIBOI & CO., CA 18 TH FLOOR, EXPRESS TOWERS NARIMAN POINT MUMBAI 400 021 APPELLANT BY : MR. AJIT KUMAR SINHA RESPONDENT BY : MR. M.P. LOHIA : O R D E R : PER R.S. PADVEKAR, J.M THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE I MPUGNED ORDER OF THE LD CIT(A)-XXXI, MUMBAI DATED 30.3.2006 FOR THE A.Y. 2001-02. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUND IN TH E APPEAL : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT PROVISIONS OF SECTION 40A(2)(B) ARE NOT APPLICABLE TO THE TRANSACTION AND PAYMENTS OF HIRE CHARGES IS REASONABLE. 3. THE FACTS PERTAINING TO THE ISSUE WHICH REVEAL F ROM THE RECORD ARE AS UNDER :- ITA NO.3950/MUM/2006 2 THE ASSESSEE IS THE PARTNERSHIP FIRM (PF) IN THE NETHERLAND AND IS ALSO A NON-RESIDENT. THE ASSESSEE FIRM WAS AWARDED CONTR ACT BY THE INDIAN OIL CORPORATION LIMITED (IN SHORT IOCL) FOR DREDGING AND RECLAMATION WORKS FOR PARADIP REFINERY PROJECT ( IN SHORT PRP). THE ASSESSEE HAD PAID CHARTER HIRE CHARGES TO M/S. WORLD DREDGING INTERNATIONAL B.V. (WDI), WHICH WAS A COMPANY INCORPORATED IN THE NETHERLANDS FOR CHART ERING THE CUTTER SUCTION DREDGER AMAZONE AND SELF PROPELLED CUTTER SUCTION DREDGER TARUS. THE A.O. HAS NOTED THAT THE AMOUNT PAID TO M/S. WDL WAS TO T HE TUNE OF RS.24,51,22,454/- FOR AMAZONE AND RS. 20,19,35,61 3/- FOR TAURUS. THE A.O. ASKED FOR CERTAIN DETAILS INCLUDING THE COPIES OF THE CONTRACT FOR CHARTER HIRE RATES AS APPLICABLE AND ALSO THE RELATIONSHIP OF THE ASSESSEE WITH THE M/S. WDI. THE A.O HAS OBSERVED THAT AS PER THE ASS ESSEES SUBMISSION, DURING THE F.Y. 2000-01, M/S. WDI WAS A RELATED CON CERN TO THE ASSESSEE AS M/S. BOSKALIS WESTMINISTER INTERNATIONAL B.V., WAS THE ULTIMATE PARENT ENTITY OF THE BOSKALIS GROUP. IT IS PERTINENT TO NOTE HERE THAT THE ASSESSEE WAS THE PARTNERSHIP FIRM BETWEEN M/S. BAGGERMAATSCHAPPIJ HOLLAND B.V., TIDEWAY B.V. AND BOSKALI INTERNATIONAL-DREDGING INTERNATION AL B.V. THE A.O HAS GIVEN THE DETAILS IN RESPECT OF THE HIRE RENTAL CHARGES A S PER THE CHARTER HIRE AGREEMENT (CHA) WHICH WAS 3,11,985 EUROS PER WEEK FOR TARUS AND 1,94,683 EUROS PER WEEK FOR AMAZONE. THE A.O HA S ALSO GIVEN SOME TECHNICAL DETAILS IN RESPECT OF ONE DREDGER NAMELY DCI DREDGE AQUARIUS WHICH WAS LEASED OUT BY M/S. DREDGING CORPORATION O F INDIA LTD. TO DREDGING INTERNATIONAL FOR US $ 54000 PER WEEK. THE A.O HAS ALSO GIVEN SPECIFICATIONS OF AMAZONE BEING ANNX.-3 TO ASSESSMENT ORDER WHI CH IS A PRINT OUT OF WEB PAGE OF BIRTH VISOR, DIRECTORY OF VISOR. AS NOTE D BY THE A.O, TAURUS WAS A PROPELLED SUCTION DREDGER HAVING TOTAL INSTALLED PO WER OF 15618 K.W. AND SO FAR AS AMAZONE WAS CONCERNED WHICH WAS A CUTTER S UCTION DREDGER HAVING THE INSTALLED POWER OF 9,74 K.W. SO FAR AS DCI DREDGE AQUARIUS WAS CONCERNED, IT WAS ALSO SELF PROPELLED CUTTER SUCTI ON DREDGER WHICH WAS SIMILAR TO THE TAURUS HAVING TOTAL INSTALLED POWE R OF 14000 K.W. IN VIEW OF THE A.O, THE SERVICES RENDERED BY TAURUS AND AMA ZONE WERE SIMILAR TO THE SERVICES WHICH COULD HAVE BEEN RENDERED BY DCI DRE DGE AQUARIUS INSPITE OF THAT FACT, LESS PAYMENT WAS MADE TOWARDS LEASE RENT AL FOR DCI DREDGE ACQUARIUS. THE A.O. THEREFORE PROCEEDED TO WORK O UT THE FAIR MARKET RENTAL CHARGES IN RESPECT OF AMAZONE AND TAURUS DREDGE RS TAKING THE EXAMPLE OF ITA NO.3950/MUM/2006 3 DCI DREDGE AQUARIUS WHICH WAS AN ANOTHER DREDGER. THE A.O. FINALLY CONCLUDED THAT THE FAIR MARKET LEASE RENTAL CHARGE S PAYABLE TO TARUS PER WEEK SHOULD NOT BE MORE THAN 1,61,000/- EUROS AND I N RESPECT OF AMAZONE 94,683 EUROS PER WEEK WERE EXCESS PAYMENT MADE BY T HE ASSESSEE TO M/S. WDI WHICH WAS A RELATED PARTY. THE A.O, THEREFORE, WORKED OUT THE TOTAL EXCESS PAYMENT MADE BY THE ASSESSEE AGGREGATING RS. 9,52,42,180 IN CASE OF TAURUS AND RS.9,95,71,150/- IN CASE OF AMAZONE TOTALING RS.19,46,64,330/- AND DISALLOWED THE SAME U/S. 40A(2)(A) OF THE I.T. ACT TREATING THE SAID PAYMENT MADE TO A PERSON WHICH WAS RELATED CONCERN OF THE ASSESSEE WITHIN THE MEANING OF SEC. 40A(2)(B) OF THE ACT. THE SUM AND SUBSTANCE AND THE BASE FOR MAKING DISALLOWANCE WAS M/S.WDI. 4. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFOR E THE LD CIT(A). THE LD CIT(A), AFTER EXAMINING THE PROVISION OF SECTION 40A(2)(A)/(B) OF THE ACT HELD THAT THE A.O FAILED TO BRING ANYTHING ON RECO RD AS TO HOW THE WDI IS A PERSON SPECIFIED IN SECTION 40A(2)(B) OF THE ACT. MOREOVER, THE LD CIT(A) ALSO CONSIDERED THE FACT THAT THOUGH THE SAID CONTRACT WAS CONTINUED IN THE A.Y. 2002-03, THE TRANSFER PRICING OFFICER (TOP) VIDE O RDER U/SEC. 92CA(3) ACCEPTED THE CORRECTNESS OF THE LEASE-RENTAL PER W EEK IN RESPECT OF SAME DREDGERS I.E. TAURUS AND AMAZON. THE OPERATIVE PART OF THE ORDER OF THE LD CIT(A) IS AS UNDER :- 2.8 ACCORDINGLY, IT IS APPARENT THAT THE WDI CANNO T BE TERMED AS A PERSON SPECIFIED IN ANY ONE OF THE CLAUSES MENTIONE D IN SEC.40A(2)(B). THE AO HAS ALSO FAILED TO BRING ANYTHING ON RECORD HOW THE WDI IS A PERSON SPECIFIED IN SEC. 40A(2)(B). THE AO HAS SIM PLY MENTIONED THAT THE WDI HAS SUBSTANTIAL INTEREST IN BOSKALIS INTERN ATIONAL-DREDGING INTERNATIONAL B.V. THROUGH ITS PARENT ENTITY. AFTE R CONSIDERATION OF THE ARS ARGUMENTS AND EXAMINATION OF THE PROVISION OF SEC. 40A(2)(B), AND THE FINDINGS OF THE AO, IT IS APPARENT THAT THE AO HAS FAILED TO ESTABLISHED AS TO HOW THE WDI IS COVERED BY THE DEF INITION OF PERSON RECEIVING PAYMENT AS MENTIONED IN SEC. 40A(2)(B). I N VIEW OF THIS, I HOLD THAT THE WDI IS NOT A PERSON U/S. 40A(2)(B) AN D THE AO HAS ITA NO.3950/MUM/2006 4 WRONGLY APPLIED SEC. 40A WHILE MAKING THE DISALLOWA NCE OF LEASE RENTAL PAID IN RESPECT OF TWO DREDGERS. 2.9 BESIDES THE APPLICABILITY OF SEC. 40A(2), THE O RDER OF THE TPO FOR A.Y. 2002-03, WHILE EXAMINING THE CORRECTNESS OF TH E LEASE RENTAL PAID WITHIN THE MEANING OF SEC. 92CA(3) IS VERY RELEVANT . THE AO HAS SIMPLY MENTIONED THAT THE ORDER OF TPO FOR A.Y. 2002-03 CA NNOT BE APPLICABLE TO A.Y. 2001-02. HOWEVER, THE LEASING OF DREDGER I S MADE OVER A LONG TERM FOR A CERTAIN RENT AND WHILE APPLYING SECTION 92CA(3), THE TPO HAS TO EXAMINE WHETHER ANY EXCESSIVE PAYMENT HAS BEEN M ADE TAKING INTO ACCOUNT THE RELATIONSHIP BETWEEN THE PAYER AND THE PAYEE. THE TPO IS OBLIGED TO COMPUTE THE PAYMENT ON ARMS LENGTH BASI S AND MAKE THE DISALLOWANCE OF EXPENDITURE IF HE FINDS THAT THE PA YMENT IS IN EXCESS OF THE PAYMENT REQUIRED TO BE GIVEN AS PER THE ARMS L ENGTH PRICES. PROVISIONS OF SEC. 92 AND 92 A ARE MUCH WIDER THAN SEC. 40A(2). THUS ANY DECISION ARRIVING AT BY THE TPO FOR A.Y. 2002-0 3 IS CERTAINLY RELEVANT WHILE CONSIDERING THE SAME ISSUE IN A.Y. 2001-02. 2.10 I HAVE EXAMINED THE ORDER U/S. 92CA(3) OF THE TPO DATED 28.03.2005. HE HAS DISCUSSED IN DETAILED IN THE OR DER, THE ISSUE OF LEASE RENTAL PAID IN RESPECT OF TWO DREDGERS AMAZO NE AND TAURUS TO WDI. HE HAS ALSO DISCUSSED THE MOST APPROPRIATE T RANSFER PRICING METHOD TO JUDGE THE CORRECTNESS OF THE LEASE RENTAL PAID. HE HAS ACCEPTED THE VG BOUW VALUATION CERTIFICATES REGARDI NG THE ARMS LENGTH PRICE OF THE DREDGERS AND EQUIPMENTS ON PAGE 5 & 6 OF HIS ORDER. THE AR HAS SUBMITTED THAT THERE IS NO CHANGE IN THE CH ARTER HIGHER CHARGES OF AMAZONE AND TAURUS IN A.Y. 2001-02 VIS--VIS THE RATES APPLICABLE FOR A.Y. 2002-03. THE AR HAS SUBMITTED THAT THE SAME TRANSACTIONS OF A.Y. 2001-02 WERE CONTINUED IN A.Y. 2002-03. THE EXAMINATION OF THE TPOS ORDER U/S. 92CA(3) REVEALS THAT THE TPO HAS ACCEPTED THE CORRECTNESS OF THE LEASE RENTAL PER W EEK IN RESPECT OF TAURUS AND AMAZONE DREDGERS. HOWEVER, DISALLOW ANCE HAS BEEN MADE IN RESPECT OF TAURUS DREDGER ON PAGE 9 OF T HE ORDER ON THE GROUND THAT THE NUMBER OF DAYS FOR WHICH LEASE REN TAL WAS PAID FOR 261 DAYS WHERE IT IS PAYABLE ONLY FOR 252 DAYS. THUS I T IS VERY APPARENT ITA NO.3950/MUM/2006 5 THAT THE TPO HAS ACCEPTED THE CORRECTNESS OF THE LE ASE RENTAL PAID TO WDI, IN RESPECT OF TWO DREDGERS. SINCE THERE IS NO DIFFERENCE BETWEEN THE LEASE RENTAL PAID IN A.Y. 2001-02, AND PREVAILI NG IN A.Y. 2002-03, IT IS TO BE ACCEPTED THAT THE LEASE RENTAL PAID IN A.Y . 2001-02 IS ALSO CORRECT. AS NO OTHER CIRCUMSTANCES JUSTIFYING THE APPLICABILITY OF THE DIFFERENT RATE HAVE BEEN BROUGHT ON RECORD, I ACCOR DINGLY HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING A PART OF THE L EASE RENTAL PAID IN RESPECT OF TO DREDGERS NAMELY AMAZONE & TAURUS. 5. WE HAVE GIVEN OUR ANXIOUS CONSIDERATIONS TO THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSED THE REASONS GIVEN BY T HE LD CIT(A). ADMITTEDLY, THE A.O HAS NOT BROUGHT ON RECORD ANYTHING TO MAKE OUT THE CASE UNDER SEC. 40A(2)(B) THAT HOW THE M/S. WDI HAD SUBSTANTIAL INT EREST IN THE BOSKALIS INTERNATIONAL DREDGING INTERNATIONAL B.V., THROUG H ITS PARENT ENTITY EXCEPT GIVING THE SUMMARY OF THEIR RELATIONS. WE ALSO AGR EE WITH THE FINDINGS OF THE LD CIT(A) THAT THE A.O FAILED TO ESTABLISH AS TO HO W M/S. WDI IS COVERED BY THE DEFINITION OF THE PERSONS RECEIVING THE PAYMENT AS MENTIONED IN SEC. 40A(2)(B) OF THE ACT. MOREOVER, THE SAME TRANSACTI ON IS CONTINUED IN THE A.Y. 2002-03 AND AS SUBMITTED BY THE LD COUNSEL, THE TPO HAS NOT GONE BACK ON THE VIEW TAKEN BY THE A.O IN THE A.Y. 2001-02 WHILE PASSING THE ORDER U/S. 92CA(3) OF THE ACT AND HAS ACCEPTED THE CORRECTNESS OF THE PAYMENT. THE LD D.R. DID NOT CONTROVERT THE SUBMISSIONS MADE BY THE LD. COUNSEL AS WELL AS THE OBSERVATIONS OF THE LD. CIT(A) IN HIS ORDER. W E ALSO FIND THAT THOUGH THE A.O HAS RELIED ON THE TRANSACTIONS MADE BY M/S. DRE DGING CORPORATION OF INDIA LTD. IN MAY 2002 IN RESPECT OF DCI DREDGE AQUARIU S, EXCEPT MENTIONING THE INSTALLED POWER OF THE SAID DREDGER AS 14000 KV WH ICH WAS ALSO EVIDENT FROM THE PRINT OUT TAKEN FROM THE WEB PAGE OF BIRTH WAS ORS DICTIONARY OF DREDGERS, NO OTHER COMPARABLE DATA IS BROUGHT ON R ECORD. IN OUR OPINION, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE A.O. WE, ACCORDINGLY, CONFIRM THE SAME. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.3950/MUM/2006 6 ORDER PRONOUNCED IN THE OPEN COURT ON 14TH DAY OF DECEMBER , 2009. SD/- SD/- (PRAMOD KUMAR) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI, ON THIS 14TH DAY OF DECEMBER, 2009. :US COPY TO: 1. APPELLANT 2. RESPONDENT , 3.THE CIT(A)- XXXI, MUMBAI 4.THE CIT CONCERNED, MUMBAI 5.THE DR, L BENCH, MUMBAI 6.GUARD FILE BY ORDER TRUE COPY ASSTT..REGISTRAR, ITAT, MUMBAI. ITA NO.3950/MUM/2006 7 US DATE INITIALS 1. DRAFT DICTATED ON 7/12/09 --------------- SR.P.S . 2. DRAFT PLACED BEFORE AUTHORITY 8/12/09 -------- ------ SR.P.S. 3. DRAFT PROPOSED & PLACED ----------- ---------- --- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED ----------- ----------- -- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO ----------- ------------ - SR.P.S. THE SR. P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON --------- ----------- -- SR.P.S. 7. FILE SENT TO THE BENCH CLERK --------- --------- ---- SR.P.S. 8. DATE ON WHICH FILE GOES TO THE ------- --------- ---- 9. DATE OF DISPATCH OF ORDER --------- --------- ----