International Seaport Dredging Limited, CHENNAI V. DCIT, CHENNAI

ITA 418/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8739 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MILIND M BHUSARI
• Assessee Lawyers: ASHIK SHAH S
• Keywords: Transfer pricing; Double taxation relief; International transaction; Non-deduction of tax
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.418/MDS/2015 ( / ASSESSMENT YEAR: 2010-11) M/S. INTERNATIONAL SEAPORT DREDGING LTD. 5 TH FLOOR, CHALLAM TOWERS, OLD NO.62, NEW 113, DR.R.K.SALAI, CHENNAI-600 004. VS THE DEPUTY COMMISSIONER OF INCOME TAX , CORPORATE CIRCLE-2(2), WANAPARTHY BLOCK, 5 TH FLOOR , CHENNAI - 34. PAN:AABCI2286E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SRIRAM SESHADRI & MR.ASHIK SHAH, ADVOCATES /RESPONDENT BY : MR.MILIND M.BHUSARI, CIT /DATE OF HEARING : 23 RD MAY, 2016 /DATE OF PRONOUNCEMENT : 22 ND JULY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX CHENNAI DATED 21.01.2015 PASSED UNDER SECTION 143(3 ) R.W.S., 144C(13) OF THE ACT PURSUANT TO THE DIRECTI ONS OF LEARNED DRP VIDE ORDER DATED 26.12.2014 IN F.NO. DRP/CHE/68/2014-15 PASSED UNDER SECTION 143(3) R.W. S., 144C(1) OF THE ACT. 2 ITA NO.418 /MDS/2015 2. THE ASSESSEE HAS RAISED THREE ELABORATE GROUNDS IN ITS APPEAL, HOWEVER THEY ARE CONCISED HEREIN BELOW FOR ADJUDICATION:- I) THE LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED DRP HAS ERRED IN DISALLOWING ` 50,80,13,185/- BEING BAREBOAT HIRE CHARGES FOR NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. II) THE LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED DRP HAS ERRED IN DETERMINING ALP BY MAKING DOWNWARD ADJUSTMENT OF ` 2,23,00,288/- IN RESPECT OF FEES PAID FOR TECHNICAL SERVICES TO AES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF DREDGING AND MAR INE ENGINEERING SERVICES INVOLVING DESIGNING, CONSTRUC TION, DEVELOPING, MODERNIZING, EXTENDING AND MAINTAINING PORTS AND HARBORS FILED ITS RETURN OF INCOME FOR THE ASSE SSMENT YEAR 2010-11 ON 07.10.2010 DECLARING LOSS OF ` 87,26,34,000/-. THEREAFTER, THE CASE WAS TAKEN UP FOR SCRUTINY UNDE R SECTION 143(3) OF THE ACT AND FINALLY ORDER WAS PASSED BY T HE LEARNED ASSESSING OFFICER UNDER SECTION 143(3) R.W.S 143C(1 3) OF THE ACT , AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 3 ITA NO.418 /MDS/2015 GROUND NO.1: DISALLOWANCE OF ` 50,80,13,185/- BEING BAREBOAT HIRE CHARGES FOR NON-DEDUCTION OF TAX AT S OURCE UNDER SECTION 195 OF THE ACT BY INVOKING THE PROVIS IONS OF SECTION 40(A)(I) OF THE ACT: 4.1 THE LEARNED ASSESSING OFFICER IN ITS DRAFT ASSESSME NT ORDER HAS OBSERVED THAT THE ASSESSEE HAS MADE PAYME NT OF `50,80,13,185/- TO M/S. SOCIETE DE DRAGAGE INTERNAT IONAL, FRANCE FOR BARE BOAT CHARTER HIRE RENTAL CHARGES F OR DREDGER ANTIGOON, RELEVANT TO DHAMRA PROJECT WITHOUT DEDUC TING TDS. ON QUERY, WHY THE PROVISIONS OF TDS WILL NOT BE APP LICABLE, THE ASSESSEE EXPLAINED THAT PROTOCOL 7 OF THE TREAT Y BETWEEN INDIA AND FRANCE RESTRICTS THE SCOPE OF THE TREATY TO THE EXTENT OF ANY PROTOCOL SIGNED AFTER 1.9.1989 BETWEEN INDIA AND A THIRD STATE WHICH IS A MEMBER OF THE OECD. HE FURTH ER EXPLAINED THAT THOUGH ARTICLE 13 OF THE TREATY BETW EEN INDIA AND FRANCE INCLUDES PAYMENT FOR USE OF EQUIPMENTS T O BE TAXED IN THE CONTRACTING STATE, ARTICLE 12 OF THE T REATY BETWEEN INDIA AND SWEDEN EXCLUDES THE SAME. THEREFORE, AS P ER PROTOCOL 7 OF THE TREATY BETWEEN INDIA AND FRANCE, THE ASSESSEE WOULD NOT BE LIABLE TO DEDUCT TAX AT SOURC E BECAUSE SUCH INCOME WILL NOT BE TAXABLE IN INDIA. HOWEVER, THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT PROT OCOL 7 OF 4 ITA NO.418 /MDS/2015 THE TREATY ONLY SPEAKS ABOUT ADOPTION OF LOWER RATE IN CASE OF USE OF EQUIPMENT AND PAYMENT MADE THEREOF AND ACCOR DINGLY TAX HAS TO BE DEDUCTED AT SOURCE. SINCE THE ASSESSE E HAS NOT DEDUCTED TAX AT SOURCE, THE LEARNED ASSESSING OFFIC ER INVOKED THE PROVISIONS OF SECTION 40(A)(I) OF THE A CT AND DISALLOWED THE PAYMENT MADE TOWARDS BARE BOAT CHART ER HIRE RENTAL CHARGES. 4.2 THE LEARNED DRP CONFIRMED THE ORDER OF THE LEAR NED ASSESSING OFFICER BY OBSERVING AS UNDER: 3.2.4 EVEN THE DTAA BETWEEN INDIA AND FRANCE ALSO CLARIFIES THAT THE BARE BOAT HIRE CHARGES ARE IN TH E NATURE OF 'ROYALTY'. HENCE THE ABOVE BAREBOAT HIRE CHARGES AMOUNTS TO 'ROYALTY' FOR THE PURPOSE OF INCOME TAX AND BECOMES ASSESSABLE TO TAX IN INDIA I N THE HANDS OF THE RECIPIENT. THEREFORE, THE ASSESSEE , BEING THE REMITTER OF THE AMOUNTS, IS UNDER THE OBLIGATION OF WITHHOLDING THE TAX BEFORE MAKING THE PAYMENTS. 3.2.5 THE NEXT CLAIM OF THE ASSESSEE IS THAT AS PER THE PROTOCOL 7 OF THE INDIA- FRANCE TREATY, ANY SUBSEQU ENT TREATY WITH ANY OECD COUNTRY AFTER 1/09/1989 IN WHI CH THE SCOPE OF DEFINITION OF ROYALTY IS NARROWER THAN THE INDIA-FRANCE TREATY, SUCH NARROW DEFINITION OF ROYA LTY SHALL BE APPLICABLE TO THE INDIA-FRANCE TREATY. THE RE WAS SUBSEQUENT TREATY BETWEEN INDIA-SWEDEN (ENTERED ON 25 DECEMBER 1997), WHERE THERE WAS A RESTRICTIVE DEFINITION OF ROYALTY WHICH DOES NOT SPECIFICALLY INCLUDE 'USE OF EQUIPMENT' WITHIN ITS PURVIEW. THEREFORE THE ASSESSEE CLAIMED THAT THE BAREBOAT HIRE CHARGES WILL NOT FORM PART OF THE ROY ALTY . 3.2.6 THE ABOVE CLAIM OF THE ASSESSEE IS NOT CORRECT. ARTICLE 13 OF INDIA-FRANCE CLEARLY DEFINED THE W ORDS 5 ITA NO.418 /MDS/2015 ROYALTIES AND FEES FOR TECHNICAL SERVICES AND PAYMENTS FOR THE USE OF EQUIPMENT. THE TERM 'PAYMENTS FOR THE USE OF EQUIPMENT' AS USED IN THIS ARTICLE MEANS PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF , OR THE RIGHT TO USE INDUSTRIAL, COMMERCIAL, OR SCIENTI FIC EQUIPMENT. THESE PAYMENTS ARE IN THE NATURE OF ROYALTY. FURTHER, IN THE CASE OF INDIA-SWEDEN TREAT Y, THERE WAS NO SPECIFIC RESTRICTIVE CLAUSE EXCLUDING THE EQUIPMENT HIRE CHARGES FROM THE SCOPE OF ROYALTY. THEREFORE, AS PER TREATY CHARGING PROVISION OF THE INDIA- FRANCE TREATY, THE HIRE CHARGES OF THE ABOVE EQUIPM ENT SHOULD BE CONSIDERED AS ROYALTY PAYMENTS 'FOR THE U SE OF OR THE RIGHT TO USE OF INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT'. HENCE, THE ASSESSEE'S BAREBO AT HIRE CHARGES CLEARLY FORMS ROYALTY U/S.9(I)(VI) OF THE INCOME TAX ACT AND ACCORDINGLY THE PAYMENTS COME UNDER THE PURVIEW OF SECTION 195. 3.2.7 FURTHER, AS OBSERVED BY THE ASSESSING OFFICER, THE PROTOCOL OF THE TREATY IS NOT CATEGORICALLY SPEAKIN G ABOUT SCOPE FOR RESTRICTION ONLY. IT ALSO TELLS ABOUT ADO PTION OF LOWER RATE IN CASE OF USE OF EQUIPMENT AND PAYMENTS MADE THEREOF. THEREFORE, IN THE PRESENCE OF EXISTEN CE OF CHARGING ARTICLE ALREADY AVAILABLE IN THE INDIA- FRANCE TREATY AS PER ARTICLE 13(5), ASSESSEE CAN ADOPT FOR TOWER RATE OF DEDUCTION. IN THE INSTANT CASE, ASSES SEE HAS NOT AT ALL DEDUCTED TAX AT SOURCE. 3.2.8 THEREFORE, FOR THE REASONS DETAILED BY THE ASSESSING OFFICER IN HIS DRAFT ORDER, WE ARE ON THE CONSIDERED OPINION THAT THE ABOVE BAREBOAT CHARGES ARE WITHIN THE MEANING OF 'ROYALTY' UNDER THE PROVI SIONS OF SECTION 9(1)(VI) OF THE ACT AS WELL AS UNDER THE DTAA BETWEEN INDIA AND FRANCE. HENCE THE ASSESSEE IS UNDER THE OBLIGATION TO WITHHOLD TAX U/S.195 OF THE ACT. AS THE ASSESSEE FAILED TO WITHHOLD ANY TAX, THERE W AS A VIOLATION U/S.40(A)(I) R.W.S.195 OF THE ACT. THER EFORE, THE ACTION OF THE ASSESSING OFFICER PROPOSING TO DISALLOW THE ABOVE BAREBOAT HIRE CHARGES U/S.40(A)( I) R.W.S.195 OF THE ACT, IS AS PER THE ACT AND NEEDS N O INTERFERENCE. THE ASSESSEE FAILS IN ITS OBJECTIONS IN THIS REGARD. 6 ITA NO.418 /MDS/2015 4.3 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIV E ARGUED BY REITERATING HIS SUBMISSIONS MADE BEFORE T HE REVENUE AUTHORITIES ON EARLIER OCCASIONS, WHILE AS THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUED IN SUPPO RT OF THE ORDERS OF THE REVENUE. 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. ON PERUS ING THE INDO-FRANCE TREATY PROTOCOL 7, WE ARE OF THE VIEW T HAT THE CONTENTIONS OF THE LEARNED AUTHORIZED REPRESENTATIV E HAVE MERIT. THE RELEVANT PROTOCOL IS REPRODUCED HEREIN BELOW FOR REFERENCE: 7. IN RESPECT OF ARTICLES 11(DIVIDENDS), 12 (INT EREST) AND 13(ROYALTIES, FEES FOR TECHNICAL SERVICES AND PAYME NTS FOR THE USE OF EQUIPMENT), IF UNDER ANY CONVENTION, AGREEMENT OR PROTOCOL SIGNED AFTER 01.09.1989, BETW EEN INDIA AND A THIRD STATE WHICH IS A MEMBER OF OECD, INDIA LIMITS ITS TAXATION AT SOURCE ON DIVIDEND, INTEREST , ROYALTIES, FEES FOR TECHNICAL SERVICES OR PAYMENTS FOR THE USE OF EQUIPMENT TO A RATE LOWER OR A SCOPE MORE RESTRICTE D THAN THE RATE OF SCOPE PROVIDED FOR IN THIS CONVENTION O N THE SAID ITEMS OF INCOME, THE SAME RATE OF SCOPE AS PRO VIDED FOR IN THAT CONVENTION, AGREEMENT OR PROTOCOL ON TH E SAID ITEMS INCOME SHALL ALSO APPLY UNDER THIS CONVENTION , WITH EFFECT FROM THE FATE ON WHICH THE PRESENT CONVENTIO N OR THE RELEVANT INDIAN CONVENTION, AGREEMENT OR PROTOCOL E NTERS INTO FORCE, WHICHEVER ENTERS INTO FORCE LATER. 7 ITA NO.418 /MDS/2015 4.5 FROM THE ABOVE, IT IS CLEAR THAT PAYMENTS FOR U SE OF EQUIPMENTS UNDER ARTICLE 13 OF THE TREATY BETWEEN I NDIA AND FRANCE, IF ANY CONVENTION OR AGREEMENT OR PROTOCOL ARE SIGNED AFTER 01.09.1989 BETWEEN INDIA AND A THIRD S TATE WHICH IS A MEMBER OF OECD, THEN FOR THE PURPOSE OF TAXATION IN INDIA, THE SCOPE OF TAXATION SHALL BE RESTRICTED TO SUCH TREATY SIGNED AFTER 01.09.1989 IF ITS TERMS ARE BE NEFICIAL TO THE ASSESSEE AND AS RIGHTLY POINTED OUT BY THE ASSE SSEE INDIA HAS SIGNED A TREATY WITH SWEDEN SUBSEQUENTLY WHEREIN PAYMENTS MADE FOR HIRING EQUIPMENTS ARE EXCLUDED FR OM TAXING IN THE CONTRACTING STATE. THEREFORE, AS CLAI MED BY THE ASSESSEE INCOME ARISING OUT OF THE PAYMENT MADE BY THE ASSESSEE TOWARDS HIRING EQUIPMENTS WILL NOT BE TAXA BLE IN INDIA, ACCORDINGLY ASSESSEE WILL NOT BE LIABLE FOR DEDUCTING TAX AT SOURCE. NEEDLESS TO MENTION THAT PROTOCOL WILL F ORM AN INTEGRAL PART OF THE CONVENTION AND IT HAS TO BE DU LY RESPECTED AS THE SAME IS SIGNED BETWEEN TWO COUNTRIES UNDER AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION. THEREFO RE, THE ASSESSEE SUCCEEDS IN ITS APPEAL ON THIS ISSUE. 8 ITA NO.418 /MDS/2015 GROUND NO.2: DETERMINING ALP BY M AKING DOWNWARD ADJUSTMENT OF ` `` ` 2,23,00,288/- IN RESPECT OF EXCESS FEES PAID FOR TECHNICAL SERVICES TO AES . 5.1 BRIEF FACTS OF THE ISSUE ARE CONCISED BY THE LE ARNED DRP IN THEIR ORDER WHICH IS EXTRACTED HEREIN BELOW FOR REFERENCE: 3.1.1 THE ASSESSEE IN DURING THE F.Y.2009-10 CLAIMED TECHNICAL SERVICES FEE PAYMENT OF RS.10,20,34,943J - TO ITS AE. THE ASSESSEE HAD MADE PAYMENT OF RS.10,20,34,943/- BY WAY OF FEES FOR TECHNICAL SERVICES TO ITS AE, M/S TIDEWAY BV AND CLAIMED THAT THE PAYMENT IS ON ACCOUNT OF AVAILING TECHNICAL ASSISTANCE AND THE CONSIDERATION PAYABLE IS 3% OF PROJECT TURNOVER. THE WORKING FURNISHED BY THE ASSESSEE SHOWS THAT THE ELIGIBLE TURNOVER AS PER BOOKS IS RS.233,55,79,617/- AND THE FEES FOR TECHNICAL SERVICES (3% NET GROSSED UP FOR 10% TDS) COMES TO RS.7,78,52,654/-. AS AGAINST THIS AMOUNT, THE ASSESSEE PAID RS.10,20,34,943/- WHICH IS IN EXCESS BY RS.2,41,82,289/-. THE TPO ALSO OBSERVED THAT AS PER THE CLAUSE 4.1 OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS AE, TIDEWAY BV, THE ASSESSEE HAS TO PAY TECHNICAL ASSISTANCE FEE @ 3% ON ASSESSEE'S PROJECT TURN OVER. PROJECT TURNOVER, AS PER THE SAI D AGREEMENT, IS DEFINED AS EXCLUDING INELIGIBLE TURNOVER. THE ELIGIBLE TURNOVER REPRESENTS TURNOVER FOR WHICH THE ASSESSEE HAS RAISED INVOICES. WHEREAS THE ASSESSEE'S ELIGIBLE TURNOVER AS PER BOOKS IS ` 233,55,79,617/- AND 3% (NET GROSSED UP FOR 10% TDS) OF WHICH COMES TO RS.7,78,52,654/- . HENCE THE TPO DETERMINED THE ALP OF THE FEES FOR TECHNICAL SERVICES AT `7,78,52,654/- AS AGAINST ` 10,20,34,943/- CLAIMED BY THE ASSESSEE AND ACCORDINGLY PROPOSED A DOWNWARD ADJUSTMENT OF `2,41,82,289/-. THE RELEVANT PORTION OF THE TPOS ORDER IS AS UNDER:- 10.2 IT IS A FACT THAT THE INTERNATIONAL TRANSACTION REPORTED IN FORM 3CEB AND REFERRED BY THE AO FOR DETERMINATION OF ALP INCLUDES TECHNICAL ASSISTANCE 9 ITA NO.418 /MDS/2015 FEE PAYMENT OF RS.LO,20,34, 943/ - TO ITS AE, M/S TIDEWAY BV. THERE IS A CHARGE TO THE PROFIT AND LOSS ACCOUNT TO THE ABOVE EXTENT. TPO HAS TO DETERMINE INCOME FROM ANY INTERNATIONAL TRANSACTION WITH AE, WITH REGARD TO THE ALP OF ANY SUCH INTERNATIONAL TRANSACTION. THE PAYMENT OF TECHNICAL ASSISTANCE FE E IS GOVERNED BY CLAUSE 4.1 OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS AE, TIDEWAY BY. ASSESSEE HAS TO PAY TECHNICAL ASSISTANCE F EE @ 3% ON ITS PROJECT TURNOVER. AS PER THE AGREEMENT, THE TURNOVER OF THE ASSESSEE IS DEFINED AS EXCLUDING INELIGIBLE TURNOVER. THE ELIGIBLE TURNOVER REPRESEN TS TURNOVER FOR WHICH THE ASSESSEE HAS RAISED INVOICES . DURING THE RELEVANT PREVIOUS YEAR THE ELIGIBLE TURNOVER REPRESENTED BY INVOICES RAISED ON THIRD PARTIES, WHICH IN OTHER WORDS AMOUNTS TO BILLED INCOME OF RS.233,55, 79,617/-. THE TURNOVER AS PER PROFIT AND LOSS ACCOUNT REPRESENTS BILLED INCOME AND UNBILLED INCOME AGGREGATING TO `353,08, 59,355/- . AS PER THE AGREEMENT WITH AE, ASSESSEE IS NOT UNDER OBLIGATION TO MAKE PAYMENT BY WAY OF TECHNICAL ASSISTANCE FEE ON THE UNBILLED INCOME. THE TURNOVER ON WHICH THERE IS AN OBLIGATION ON THE PART OF THE ASSESSEE TO MAKE PAYMENT TO AE IS ONLY ON THE BILLED INCOME OF RS. 2,33,55,79,617. TAKING THIS AS THE BASIS, AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT, THE ASSESSEE HAS TO PAY TECHNICAL FEES OF ONLY RS. 7,97,34,655/ -(INCLUDING FOREX VARIATION OF RS.18,82,001) TO ITS AE. HOWEVER, THE ASSESSEE HAS PAID ` 10,20,34,943/- AS TECHNICAL ASSISTANCE FEE TO ITS AE WHICH INCLUDES EXCESS PAYMENT OF RS.2,23,00,288/-. 10.3 THE ASSESSEE IN THIS REGARD VIDE ITS SUBMISSION DATED 24.12.2013 MENTIONED THAT IT HAS COMPUTED FEES ON THE BASIS OF ACCRUED TURNOVER VIS- A-VIS ACTUAL TURNOVER. AS SUCH EXCESS FEE PAID DURI NG THE F. Y.2009-1 0 (A. Y.201O-11) AND IN FY.2010-11 (A. Y.2011-12) HAS BEEN SUBSEQUENTLY ADJUSTED IN F. Y.2011- 12 (A. Y.2012-13). 10.4 THIS EXPLANATION CANNOT BE CONSIDERED TO BE A RELEVANT FACTOR AS INCOME FROM INTERNATIONAL TRANSACTIONS HAS TO BE DETERMINED WITH REGARD TO ALP FOR EACH YEAR AND THERE CANNOT BE A CHARGE TO THE PROFITS AHEAD OF THE RELEVANT TIME FRAME FOR WH ICH INCOME IS COMPUTED. IN ANY CONTROLLED SITUATION, A 10 ITA NO.418 /MDS/2015 NEUTRAL PARTY WOULD NOT AGREE TO PAY MORE THAN WHAT IT WOULD BE OBLIGED TO PAY, WHICH CONSTITUTES THE RELEVANT CUP FOR BENCHMARKING THE SAID TRANSACTION. ASSESSEE HAS DEBITED AN AMOUNT OF `10,20,34,943/- IN ITS PROFIT AND LOSS ACCOUNT FOR THE F. Y.2009-10 AS FEES FOR TECHNICAL ASSISTANCE AND ALSO THE SAME HAS BEEN REPORTED AS INTERNATIONAL TRANSACTION IN ITS 3CEB REPORT. THEREFORE, THE DIFFERENCE BETWEEN THE TRANSACTION PRICE AND THE ARM'S LENGTH PRICE(WHAT THE ASSESSEE WAS OBLIGED TO PAY) COMES TO `2,23,00,288/- AND THE SAME CONSTITUTES A DOWNWARD ADJUSTMENT WHILE COMPUTING THE INCOME FROM THIS INTERNATIONAL TRANSACTION WITH AE. 5.2 THE LEARNED DRP THEREAFTER PROPOSED A DOWNWARD ADJUSTMENT OF `2,41,81,289/- BY OBSERVING AS UNDER :- 3.1.3 WE HAVE CONSIDERED THE ORDER OF THE TPO, THE CONTENTIONS OF THE ASSESSEE, ETC.CAREFULLY. THE ASSESSEE IS REQUIRED TO PAY TECHNICAL SERVICES FEES @ 3 OF THE PROJECT TURNOVER. THE PAYMENTS ARE GOVERNE D BY THE AGREEMENT BETWEEN THE ASSESSEE AND THE T\E. AS PER THE AGREEMENT THE TECHNICAL SERVICES FEES IS TO BE PAID @ 3% ON ASSESSEES PROJECT TURNOVER. THE PROJECT TURNOVER IS ALSO DEFINED AS EXCLUDING INELIGIBLE TURNOVER. THE ELIGIBLE TURNOVER REPRESENTS TURNOVER FOR WHICH THE ASSESSEE HAS RAISED INVOICES. HENCE THE ASSESSEE AT THE END OF THE FINANCIAL YEAR 2009-10 IS REQUIRED TO PAY THE TECHNICAL SERVICES FEES A @ 3% OF THE INVOICES RAISED ONLY. THE AE IS NOT ENTITLED FOR ANY TECHNICAL SERV ICES FEES ON THE WORK COMPLETED BUT NOT BILLED (INVOICED ) BY THE ASSESSEE AS ON 31. 03.2010. THE ASSESSEE'S ELIGIBLE TURNOVER DURING THE YEAR IS ONLY RS.233,55,79,617/-. HENCE THE REQUIRED AMOUNT OF TECHNICAL SERVICES FEES TO BE PAID TO THE AE, @ 3% (NET GROSSED UP FOR 10% TDS) COMES TO RS.7,78,52,654/-. HENCE THE TPO HAS RIGHTLY DETERMINED THE ALP OF THE FEES FOR TECHNICAL SERVICES AT RS.7,78,52,654/-. THEREFORE ,THE ACTION OF THE TPO IN DETERMINING THE ALP OF THE TECHNICAL SERVICES FEES AT RS.7,78,52,65 4/-, AS AGAINST RS.1O,20,34,943/- CLAIMED BY THE ASSESSEE, AND THE PROPOSED DOWNWARD ADJUSTMENT OFRS.2,41,82,289/-, IS JUSTIFIED AND CONFIRMED. 11 ITA NO.418 /MDS/2015 5.3 FROM THE ABOVE, WE FIND THAT THE LEARNED DRP H AS ONLY COMPUTED THE CORRECT FEE PAYABLE BY THE ASSESSEE TO ITS AE IN ACCORDANCE WITH THE RATE PRESCRIBED TOWARDS THE ELIGIBLE TURNOVER WHILE AS THE ASSESSEE HAD COMPUTED THE FEE ACCORDING TO THEIR CONVENIENCE AND ADVANTAGE DISREG ARDING THE AGREEMENT WITH ITS AE. FOR THE IRRATIONAL PAYME NT MADE BY THE ASSESSEE OVER AND ABOVE THE TERMS OF THE AGR EEMENT BETWEEN THE ASSESSEE AND ITS AE THE DRP/TPO HAS REV ISED THE PROFIT OF THE ASSESSEE BY DOWNWARD ADJUSTMENT. THEREFORE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE LEARNED DRP AND THE LEARNED ASSESSING OFFICER. ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSE SSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 22 ND JULY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 22 ND JULY, 2016 12 ITA NO.418 /MDS/2015 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF