Appeal details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 4635 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 7 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-09-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I1
Next Hearing Date
31-05-2017
Assessment Year
2011-2012
Appeal Filed On
02-02-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-532/DEL/2016 ( ASSESSMENT YEAR: 2011-12) GRANITE SERVICES INTERNATIONAL P. LTD. BUILDING NO. 7A, 5 TH FLOOR, TOWER-A, DLF CYBER CITY, PHASE-III, SECTOR-25A, GURGAON. AACCG3374Q VS ACIT CIRCLE 10(2) ROOM NO. 416A, C.R. BLDG., NEW DELHI. ASSESSEE BY SH. K.M. GUPTA, ADV. REVENUE BY SH. AMRENDER KUMAR, CIT DR KUMAR PRANAV, SR. DR ORDER PER K. N. CHARY, J.M. THIS IS AN APPEAL BY THE ASSESSEE CHALLENGING THE ASSESSMENT ORDER DATED 31.12.2015 IN RESPECT OF AY 2011-12 PURSUANT TO THE DIRECTIONS OF THE LD. DISPUTE RESOL UTION PANEL- 1, NEW DELHI BY WAY OF ORDER DATED 25.11.2015. DATE OF HEARING 29.08.2017 DATE OF PRONOUNCEMENT 12.09.2017 2 ITA NO. 532/DEL/2016 2. BRIEFLY STATED FACTS RELEVANT FOR THE DISPOSAL O F THIS APPEAL ARE THAT THE ASSESSEE WAS INCORPORATED ON 15.02.201 5 IN INDIA AS A WHOLLY OWNED SUBSIDIARY OF GRANITE SERVICES IN TERNATIONAL INC., USA (GRANITE USA) AND AT RELEVANT PERIOD OF T IME IT WAS PRIMARILY ENGAGED IN PROVIDING TECHNICAL SUPPORT TO ITS ASSOCIATED ENTERPRISES (AES). THE TECHNICAL SUPPOR T SERVICES PROVIDED BY THE ASSESSEE TO ITS AES RELATE TO PROVI SION OF ERECTION, INSTALLATION, COMMISSIONING, WARRANTY ADM INISTRATION, OPERATION AND MAINTENANCE, INSPECTION, RENOVATION A ND MODERNIZATION SERVICES FOR POWER PLANTS AND TURBINE S. FOR THE AY 2011-12 THE ASSESSEE FILED THE RETURN OF INCOME ON 29.11.2011 DECLARING A TOTAL INCOME OF RS. 6,95,32, 697/-. IN RESPECT OF THE INTERNATIONAL TRANSACTIONS, THE MATT ER WAS REFERRED U/S 92CA OF THE INCOME TAX ACT, 1961 (HERE INAFTER FOR SHORT CALLED AS THE ACT) AND THE TRANSFER PRICING OFFICER BY WAY OF ORDER DATED 16.01.2015 PROPOSED AN ADJUSTMENT TO A TUNE OF RS. 4,24,88,928/-. BY WAY OF DRAFT ORDER DATED 27.0 2.2015 AO PROPOSED THE ADDITION OF RS. 4,24,88,928/- AND COMP UTED THE TOTAL INCOME OF THE ASSESSEE AT RS. 11,20,21,630/-. ASSESSEE CARRIED THE MATTER BEFORE THE DISPUTE RESOLUTION PA NEL BY FILING 3 ITA NO. 532/DEL/2016 OBJECTIONS. DURING THE COURSE OF THE PROCEEDINGS B EFORE THE LD. DRP, THE DRP RAISED A QUERY IN RESPECT OF THE TAX D EDUCTIBLE AT SOURCE (TDS) COMPLIANCE BEING MADE IN RESPECT OF CE RTAIN EXPENSES BUT THE ASSESSEE OPPOSED THE SAME STATING THAT THE SAID ISSUE WAS NOT BORNE OUT OF DRAFT ASSESSMENT OR DER NOR FROM THE ADDITIONS PROPOSED BY THE AO, BUT WITHOUT PREJUDICE TO SUCH CONTENTIONS, FURNISHED THE DETAILS SOUGHT B Y THE DRP. DRP GAVE CERTAIN DIRECTIONS TO THE AO TO VERIFY AND COMPUTE THE DISALLOWANCE U/S 40(A)(I) OF THE ACT. ASSESSEE FURNISHED THE FACTUAL AND LEGAL SUBMISSIONS BEFORE THE AO EXPLAIN ING THE REASONS AS TO WHY THE DISALLOWANCE WAS NOT WARRANTE D U/S 40(A)(I) OF THE ACT WITH RESPECT TO THE PAYMENT OF TRAVELLING AND CONVEYANCE, SALARY AND ALLOWANCE AND SUBMITTED THAT THE SAID PAYMENTS WERE IN THE NATURE OF REIMBURSEMENT OF EXP ENSES WITHOUT ANY ELEMENT OF INCOME BEING EMBEDDED THEREI N. HOWEVER, THE AO REACHED THE CONCLUSION THAT THE PAY MENTS MADE TOWARDS TRAVEL AND CONVEYANCE, SALARY AND ALLO WANCE AND PAY ROLL ADMINISTRATION SERVICES OF TAXABLE AS FEES FOR INCLUDED SERVICES (FIS)/FEES FOR TECHNICAL SERVICES (FTS) IN INDIA AND ACCORDINGLY LIABLE TO TAX IN INDIA, AND SINCE THE A SSESSEE DID 4 ITA NO. 532/DEL/2016 NOT WITHHOLD ANY TAX ON THESE EXPENSES, SUCH EXPENS ES ARE LIABLE TO BE DISALLOWED U/S 40(A)(I) OF THE ACT. B Y WAY OF ORDER U/S 154 OF THE ACT THE AO ISSUED RECTIFICATION, ASS ESSING THE INCOME OF THE ASSESSEE OF RS. 20,46,84,323/- AFTER DELETING THE DISALLOWANCE MADE IN RESPECT OF PURCHASE OF PAY ROL L ADMINISTRATION SERVICES OF RS. 49,61,837/-. FINALL Y THE ASSESSING OFFICER MADE THE TRANSFER PRICING ADJUSTM ENT OF RS. 2,88,41,266/- AND DISALLOWANCE U/S 40(A)(I) OF THE ACT TO A TUNE OF RS. 2,32,85,369/- IN RESPECT OF REIMBURSEMENT OF TRAVEL AND CONVEYANCE EXPENSES AND A SUM OF RS. 8,19,24,990/- IN RESPECT OF PAYMENT OF SALARY AND ALLOWANCES. 3. CHALLENGING THE SAME, THE ASSESSEE PREFERRED THI S APPEAL ON THE FOLLOWING GROUNDS: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICE R (AO) PURSUANT TO THE DIRECTIONS OF HONBLE DISPUTE RESOL UTION PANEL (DRP) IS BAD IN LAW AND INVALID TO THE EXTENT THE A DDITIONS MADE IN THE FINAL ASSESSMENT ORDER. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRANSFER PRICING OFFICER (TPO)/THE AO/THE DRP ERRED IN NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE INCOME TAX ACT, 1961 (ACT) ARE SATI SFIED IN THE PRESENT CASE. 3. THAT THE TPO/THE AO/THE DRP HAVE ERRED ON FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 2,9 9,41,266/-. 5 ITA NO. 532/DEL/2016 3.1 THE TPO/THE AO/THE DRP ERRED ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW IN FRAMING THE ORDER U/S 92CA OF THE ACT ON FINDINGS WHICH ARE ERRONEOUS IN LAW, CONTRARY TO THE FACTS AND BASED ON MERE CONJEC TURES AND SURMISES. 3.2 THE TPO/THE AO/THE DRP FAILED TO APPRECIATE THE SUBMISSIONS MADE/CONTENTIONS RAISED BY THE APPELLAN T. 3.3 THE TPO/THE AO/THE DRP ERRED IN ENHANCING THE INCOM E OF THE APPELLANT BY RS. 2,99,41,266 HOLDING THAT THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT PERTAIN ING TO PROVISION OF TECHNICAL SERVICES TO ITS ASSOCIATES E NTERPRISES (AES) DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENV ISAGED UNDER THE ACT AND IN DOING SO, HAVE GROSSLY ERRED I N: 3.4 DISREGARDING THE ARMS LENGTH PRICE (ALP) AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING (TP) DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RUL ES, 1962 (RULES). 3.5 REJECTING COMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION AND CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION O F ADDITIONAL/REVISED FILTERS, IN DETERMINING THE ALP FOR THE INTERNATIONAL TRANSACTIONS. 3.6 INCLUDING COMPANIES HAVING HIGH GROWTH IN REVENUES AND PROFITS IN THE FINAL COMPARABLES SET FOR BENCHMARKING A LOW RISK CAPTIVE UNIT SUCH AS THE APPELLANT; 3.7 INCLUDING CERTAIN COMPANIES IN THE FINAL SET OF COMPARABLES THAT ARE NOT COMPARABLE TO THE APPELLAN T IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AN D RISKS ASSUMED; AND EXCLUDING CERTAIN COMPANIES ON ARBITRARY/FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 3.8 BY COMMITTING A NUMBER OF FACTUAL ERRORS IN SELECTION/REJECTION OF PROPOSED COMPARABLES; 3.9 IGNORING THE BUSINESS/COMMERCIAL REALITY THAT THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL-FLEDGED RISK TAKING ENTREPRENEURS, AND BY NOT ALLOWING A RI SK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT ; 3.10 DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT; AND 3.11 DISREGARDING MULTIPLE YEAR/PRIOR YEARS DATA AS USE D BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDIN G 6 ITA NO. 532/DEL/2016 THAT CURRENT YEAR (I.E. FINANCIAL YEAR (FY) 2010-11 ) DATA FOR COMPARABLE COMPANIES SHOULD BE USED. 4. THAT THE DRP HAS ERRED IN LAW IN DIRECTING THE AO T O ENHANCE THE INCOME OF THE APPELLANT BY INVOKING THE PROVISI ONS OF SECTION 144C (8) OF THE ACT WITHOUT APPRECIATING TH AT THERE IS NO SUCH DISALLOWANCE/VARIATION PROPOSED BY THE AO UNDE R SECTION 40(A)(I) OF THE ACT IN THE DRAFT ASSESSMENT ORDER N OR THERE IS ANY OBJECTIONS OF THE APPELLANT IN THIS REGARD BEFO RE THE DRP. 4.1 THAT THE DRP FAILED TO APPRECIATE THAT THE INSERTIO N OF EXPLANATION BELOW SUB SECTION 8 OF SECTION 144C OF THE ACT WAS TO MAKE AN ENHANCEMENT ON THE VARIATION MADE IN THE DRAFT ASSESSMENT ORDER AND NOT TO RAISE A FRESH ISS UE WHICH IS NOT THE SUBJECT MATTER OF DRAFT ASSESSMENT ORDER NOR ANY SUCH ISSUE RAISED BY THE APPELLANT BEFORE THE DRP. 4.2 THAT THE AO ERRED IN MAKING A DISALLOWANCE OF RS. 110,172,196 UNDER SECTION 40(A)(I) OF THE ACT IN FI NAL ASSESSMENT ORDER IN PURSUANT TO DIRECTION OF DRP UN DER 144C(8) OF THE ACT WHICH ARE ILLEGAL, WITHOUT JURIS DICTION AND BAD IN LAW. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO AND THE DRP ERRED IN DISALLOWING PAYROLL ADMINISTRATION SERVICES OF RS. 49,61,837, UNDER SEC TION 40(A)(I) OF THE ACT. 6.1 THE AO AND THE DRP FAILED TO APPRECIATE THAT T HE APPELLANT HAS DULY COMPLIED WITH THE PROVISIONS OF CHAPTER XV II B AND SECTION 40(A)(I) OF THE ACT IN RESPECT OF THE SAID PAYROLL ADMINISTRATION SERVICES. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO AND THE DRP ERRED IN HOLDING THAT THE TRAVEL AND CONVEYANCE EXPENSES OF RS. 2,32,85,369 WARRANT DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. 6.1 THE AO AND THE DRP ERRED IN HOLDING TRAVEL AND CONVEYANCE EXPENSES TO BE IN THE NATURE OF FEE FOR TECHNICAL SERVICE (FTS) AS PER SECTION 9(1)(VII) OF THE ACT AND FEE FOR INCLUDED SERVICES (FIS) AS PER ARTICLE 12(4 ) OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA A ND USA. 6.2 THE AO AND THE DRP FAILED TO APPRECIATE THAT THE SA ID AMOUNT REPRESENTS MERELY REIMBURSEMENT OF EXPENSES ON A COST-TO-COST BASIS TO THE GROUP COMPANY. 6.3 WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW, THE AO AND THE DRP ERRED IN NO T APPRECIATING THAT THE SERVICES PROVIDED BY THE EMPL OYEES SECONDED TO APPELLANT COMPANY DO NOT MAKE AVAILABL E 7 ITA NO. 532/DEL/2016 ANY TECHNICAL KNOW-HOW, SKILLS, ETC., AS PROVIDED U NDER THE DTAA BETWEEN INDIA AND USA. 7. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO AND THE DRP FAILED TO APPRECIATE THAT THE SUM OF RS. 8,19,24,990 WAS INCURRED ON ACCOUNT OF MERE REIMBUR SEMENT OF SALARY AND OTHER ALLOWANCES, PAID TO GROUP COMPA NY FOR SECONDMENT OF EMPLOYEES TO WORK FOR THE APPELLANT D URING THE CONCERNED ASSESSMENT YEAR. 7.1 THAT THE AO AND THE DRP ERRED IN HOLDING SUCH PAYME NTS TO BE IN THE NATURE OF FTS AS PER SECTION 9(1)(VII) OF THE ACT AND FIS AS PER ARTICLE 12(4) OF DTAA BETWEEN INDIA AND USA. 7.2 THAT THE AO AND DRP ERRED IN HOLDING THAT SUCH PAYM ENTS WARRANT DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. 7.3 WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW, THE AO AND THE DRP ERRED IN NO T APPRECIATING THAT THE SERVICES PROVIDED BY THE EMPL OYEES SECONDED TO APPELLANT COMPANY DO NOT MAKE AVAILABL E ANY TECHNICAL KNOW-HOW, SKILLS, ETC., AS PROVIDED U NDER THE DTAA BETWEEN INDIA AND USA. 8. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN LEVYING INTEREST UNDER SECTION 234A OF THE ACT WITHOUT APPRECIATING THAT THE INCOME TAX RETURN WAS FILED WITHIN THE DUE DATE. 9. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN WITHDRAWAL OF INTEREST UNDER SECTION 24 4A AND LEVYING INTEREST UNDER SECTION 234D OF THE ACT. 10. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 11. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN PROPOSING TO INITIATE THE PENA LTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THAT THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLU SIVE AND WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER , AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT T HE TIME OF HEARING OF THIS APPEAL. ANY CONSEQUENTIAL RELIEF T O WHICH THE APPELLANT MAY BE ENTITLED UNDER LAW IN PURSUANCE OF THE AFORESAID GROUNDS OF APPEAL, OR OTHERWISE MAY BE GRANTED. 8 ITA NO. 532/DEL/2016 4. LD. AR SUBMITTED THAT GROUNDS 1, 2, 9 & 10 ARE G ENERAL IN NATURE, GROUNDS 3 AND 4 ARE IN RESPECT OF THE TRANS FER PRICING ADJUSTMENT, AND GROUNDS 5 & 6 ARE IN RESPECT OF COR PORATE TAX ISSUES. HE FURTHER SUBMITTED THAT GROUNDS 7 & 8 AR E ACADEMIC IN NATURE IN VIEW OF GROUNDS 5 & 6. 5. IN SO FAR AS GROUNDS 3 & 4 ARE CONCERNED, LD. AR SUBMITTED THAT THEY ARE CONFINING THEIR ARGUMENTS T O THE CHALLENGE OF FOUR COMPARABLES SELECTED BY THE TPO, NAMELY, HSCC (INDIA) LTD., MAHINDRA CONSULTING ENGINEERS LT D., MITCON CONSULTANCY & ENGG. SERVICES LTD. AND RITES LTD. (C ONSULTANCY DIVISION), AND TWO COMPARABLES EXCLUDED BY THE TPO, NAMELY, EDAC ENGINEERING LIMITED AND MN DASTUR & COMPANY (P ) LIMITED. HE FURTHER BROUGHT TO OUR NOTICE THAT IN ASSESSEES OWN CASE IN ITA NO. 1486/DEL/2015 FOR THE AY 2010-1 1 A COORDINATE BENCH OF THIS TRIBUNAL CONSIDERED MAHEND RA CONSULTING ENGINEERS LTD. AND MN DASTUR & COMPANY ( P) LIMITED AND FOUND THAT THESE TWO COMPANIES ARE INCL UDIBLE IN THE LIST OF COMPARABLES AND TO THAT EXTENT THOSE TW O COMPARABLES ARE COVERED BY THE EARLIER YEAR ORDERS. WHAT, 9 ITA NO. 532/DEL/2016 THEREFORE, REMAINS TO BE CONSIDERED, IT IS THE CHAL LENGE OF THE ASSESSEE FOR THE INCLUSION OF HSCC INDIA LIMITED, M ITCON CONSULTANCY & ENGG. SERVICES LTD. AND RITES LTD. (C ONSULTANCY DIVISION) AND THE EXCLUSION OF EDAC ENGINEERING LIM ITED. NOW WE SHALL PROCEED TO CONSIDER THE RESPECTIVE ARGUMEN TS IN RESPECT OF THESE FOUR COMPANIES. IN SO FAR AS HSCC INDIA LTD. IS CONCERNED BOTH THE PARTIES SUBMITTED THAT THIS I S A GOVERNMENT COMPANY WITH THE MAJOR SHAREHOLDING HELD BY THE GOVERNMENT. LD. AR PLACED RELIANCE ON THE DECISION REPORTED IN THYSSENKRUPP INDUSTRIES INDIA (P) LTD. VS. ADDIT IONAL COMMISSIONER OF INCOME TAX (2013) 33 TAXMANN.COM 10 7 (MUMBAI TRIB.) AT PARAGRAPH NO. 12.8.1 AND 12.8.2 , WHEREIN IT WAS HELD AS FOLLOWS: 12.8.1 NEXT IS THE CASE OF ENGINEERS INDIA LIMIT ED, WHICH WAS INCLUDED BY THE TPO AT HIS OWN. THE LD. COUNSEL FO R THE ASSESSEE CONTENDED THAT THIS CASE SHOULD BE IGNORED BECAUSE IT IS A GOVERNMENT UNDERTAKING. IT WAS FURTHER POINTE D OUT THAT MOST OF ITS CUSTOMERS OF THE TURNKEY PROJECT DIVIS ION ARE RELATED PARTIES, BEING, OTHER PUBLIC SECTOR UNDERTAKINGS, W HICH IS MUCH MORE THAN THE FILTER OF 25%. THE LD. DEPARTMENTAL REPRESENTATIVE, HOWEVER, ACCENTUATED THAT THE TPO W AS RIGHT IN INCLUDING THIS CASE IN THE LIST OF COMPARABLES. 12.8.2 WE FIND IT AS UNDISPUTED THAT ENGINEERS IND IA LIMITED IS A GOVERNMENT COMPANY. IT HAS SEVERAL SEGMENTS WHIC H ALSO INCLUDE TURNKEY PROJECT. PAGE 700 OF THE PAPER B OOK IS A COPY OF ANNUAL REPORT OF ENGINEERS INDIA LIMITED ON TURN KEY PROJECT. IT 10 ITA NO. 532/DEL/2016 CAN BE SEEN THAT THE REVENUE HAS ARISEN FROM COMPLE TING PARAXYLENE PLANT OF IOCL AND FURTHER THAT COMPANY I S ENGAGED IN EXECUTION OF OTHER UNIT OF IOCLS PANIPAT NAPHTH A CRACKER PROJECT. IN OUR CONSIDERED OPINION, THIS CASE SHOU LD NOT HAVE BEEN INCLUDED IN THE LIST OF FINAL COMPARABLES FOR TWO REASONS. FIRST REASON IS THAT PROFIT MOTIVE IS NOT A RELEVAN T CONSIDERATION IN CASE OF GOVERNMENT UNDERTAKINGS. MANY GOVERNMEN T UNDERTAKINGS EVEN OPERATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT. THE SECOND REASON I S THAT ENGINEERS INDIA LIMITED EARNED INCOME FROM TURNKEY PROJECT BY SUCCESSFULLY COMPLETING THE PROJECT OF IOCL AND OTH ER PUBLIC SECTOR UNDERTAKINGS. IN THAT SENSE OF THE MATTER, THE RELATED PARTY TRANSACTIONS ARE MUCH MORE THAN THE FILTER OF 25%. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS CASE FRO M THE LIST OF COMPARABLES. 6. ON THE BASIS OF THE ABOVE DECISION, HE ARGUED TH AT THE PUBLIC SECTOR UNDERTAKINGS HAVE TO BE REJECTED TO BE COMPA RABLES. HAVING REGARD TO THE OP/OC PERCENTAGE OF HSCC INDIA LIMITE D COMPARATIVE TO THE RATIO OF THE ASSESSEE COMPANY LD . DR ALSO SUBMITTED THAT HSCC INDIA LIMITED CANNOT BE A COMPA RABLE. 7. SIMILARLY, IN RESPECT OF MITCON CONSULTANCY AND ENGINEERING SERVICES LIMITED AND RITES LTD. IT IS SUBMITTED THA T BOTH THESE COMPANIES HAVE MULTI DIMENSIONAL FUNCTIONALITY AND MOSTLY SERVING THE RELATED PARTIES, AND APART FROM THAT THE SEGMEN TAL DATA IS NOT AVAILABLE. ON THIS ASPECT ALSO LD. AR SUBMITS THAT THESE TWO COMPANIES CANNOT BE GOOD COMPARABLES. ON FACTS, LD . DR DOES NOT DISPUTE THE SAME. WE, THEREFORE, HOLD THAT THESE T WO COMPANIES ALSO CANNOT BE COMPARABLES TO THE ASSESSEE COMPANY. 11 ITA NO. 532/DEL/2016 8. NOW TURNING TO THE PRAYER OF THE ASSESSEE TO INC LUDE MN DASTUR & COMPANY (P) LIMITED & EDAC ENGINEERING LIM ITED IS CONCERNED, AS ALREADY NOTED ABOVE, IN ASSESSEES OW N CASE FOR THE AY 2010-11 A COORDINATE BENCH OF THIS TRIBUNAL HAS CONSIDERED THE INCLUDIBILITY OF MN DASTUR & COMPANY (P) LIMITED HE LD THAT THIS COMPANY IS INCLUDIBLE IN THE LIST OF COMPARABLES. NO NEW FACTS ARE BROUGHT TO OUR NOTICE DISTURBING THIS FINDING. WE, THEREFORE, WHILE RESPECTFULLY FOLLOWING THE SAID FINDING OF THE COOR DINATE BENCH FOR THE EARLIER YEAR HOLD THAT THIS COMPANY HAS TO BE I NCLUDED IN THE LIST OF COMPARABLES. 9. NOW COMING TO THE EDAC ENGINEERING LIMITED, IT I S THE OBSERVATION OF THE TPO, VIDE PARAGRAPH NO. 8.1(B) T HAT ON THE ANALYSIS OF THE ANNUAL REPORT OF THE COMPANY WHICH WAS FOUND THAT THE COMPANY WAS HAVING 100% RPT WITH AES. LD. AR S UBMITS THAT FACTUALLY THIS FINDING IS INCORRECT AND INVITED OUR ATTENTION TO PARAGRAPH NO. 4.121 & 4.122 AT PAGE NO. 38 OF THE O BJECTIONS SUBMITTED BEFORE THE DRP VIDE ANNEXURE NO. 4, WHERE IN THEY HAVE STATED THAT THE RPT OF THE EDAC ENGINEERING IS ONLY 14.79 % BASING ON THE FOLLOWING COMPUTATION DETAILS: 12 ITA NO. 532/DEL/2016 PARTICULARS AMOUNT (INR) OTHER 21,927,843 SALES 998,373,958 SUB CONTRACT 25,067,448 TOTAL RPT 1,045,369,249 TOTAL SALES 7,066,591,068 RPT/TOTAL SALES 14.79% THIS PERCENTAGE OF 14.79 IS MUCH BELOW THE 25% FILT ER. LD. COUNSEL DREW OUR ATTENTION TO PAGE NOS. 51 TO 53 OF THE ANNUAL REPORT OF THE EDAC ENGINEERING LIMITED FOR THE FINA NCIAL YEAR ENDED MARCH 31, 2011 VIDE NOTES RELATING TO RELATED PARTIES, AND SUBMITTED THAT THESE FIGURES ARE THE BASIS FOR THE SUBMISSIONS IN THE TABLE REFERRED TO ABOVE, AND THERE IS A FAILURE ON THE PART OF THE AUTHORITIES BELOW TO APPRECIATE THIS FACT. ON THE FACE OF THIS SUBMISSION WITH REFERENCE TO THE ANNUAL REPORT OF E DAC ENGINEERING LIMITED AND SUBMISSIONS MADE BEFORE THE DRP, WE ARE OF THE CONSIDERED OPINION THAT THIS FACT NEEDS VERI FICATION. WE, THEREFORE, SET ASIDE THIS ASPECT TO THE FILE OF THE TPO TO VERIFY THE RPT OF EDAC ENGINEERING COMPANY SERVICES LTD. WITH REFERENCE TO THE ANNUAL REPORT AND OTHER RECORD, IF ANY, TO BE S UBMITTED BY THE ASSESSEE. 10. NOW TURNING TO GROUNDS NO. 5 & 6, IT IS THE SUB MISSION OF THE LD. AR THAT THE QUERY RELATING TO THE TAX DEDUCTIBL E AT SOURCE RAISED BY THE DRP AND THE CONSEQUENTIAL DISALLOWANCE U/S 4 0(A)(I) OF THE 13 ITA NO. 532/DEL/2016 ACT DOES NOT EMANATE FROM THE ASSESSMENT ORDER, AS SUCH, CLEARLY THE DRP STEPPED OUT OF HIS JURISDICTION IN VIEW OF THE PROVISIONS U/S 144C(8) OF THE ACT. ACCORDING TO HIM THE DRP H AS NO JURISDICTION TO GO BEYOND THE ISSUES ARISING FROM T HE ASSESSMENT ORDER IN RESPECT OF EXPLANATION APPENDED TO SECTION 144C(8) BY FINANCE ACT, 2012 W.E.F. 1.4.2009. HE SUBMITS THAT EVEN THIS EXPLANATION ALSO DOES NOT ENLARGE THE JURISDICTION OF THE DRP THAT WAS ORIGINALLY CONFERRED BY THE PROVISION. 11. AS AN EXAMPLE FOR HIS ARGUMENT HE SUBMITTED THA T IN CASE THREE ISSUES, NAMELY ISSUE A, ISSUE B AND ISSUE C H AVE ARISEN FROM AN ASSESSMENT ORDER, AND THE ASSESSEE RAISES OBJECT ION IN RESPECT OF ISSUE A AND ISSUE B, DRP EXERCISING JURISDICTION IN RESPECT OF ISSUES A & B IS OBVIOUSLY WELL WITHIN ITS POWERS IN VIEW OF THE PROVISIONS OF SECTION 144C(8) OF THE ACT. HE FURTH ER SUBMITTED THAT IN VIEW OF THE EXPLANATION TO THE EFFECT THAT THE D RP SHALL HAVE THE POWER TO CONFIRM, REDUCED OR ENHANCED THE VARIATION S PROPOSED IN THE DRAFT ORDER NOTWITHSTANDING THAT THE ISSUE WAS RAISED OR NOT BY THE ASSESSEE BEFORE THE DRP, THE DRP WILL HAVE JURI SDICTION IN RESPECT OF ISSUE NO. C ALSO INASMUCH AS SUCH AN ISS UE EMANATES 14 ITA NO. 532/DEL/2016 FROM THE ASSESSING ORDER. HOWEVER, IN SO FAR AS AN Y OTHER ISSUE THE DRP SHALL HAVE NO JURISDICTION EVEN AFTER THE EXPLA NATION TO SECTION 144C(8) THAT WAS INSERTED BY THE FINANCE ACT, 2012 W.E.F. 1.4.2009. ACCORDING TO HIM WHETHER OR NOT THE ASSESSEE RAISES ANY OBJECTION, THE JURISDICTION OF DRP IS STRICTLY CONFINED TO THE VARIATION PROPOSED IN THE ASSESSMENT ORDER BUT NOTHING ELSE. BASING O N THIS ANALOGY LD. AR SUBMITTED THAT THE DRP RAISING THE ISSUES WH ICH ARE NOT RELATING TO ANY VARIANCE PROPOSED IN THE ASSESSMENT ORDER IN THIS CASE IS CLEARLY BEYOND THE JURISDICTION OF THE DRP, AS SUCH, ANY ADDITION PROPOSED BY THE DRP TO BE VERIFIED BY THE AO HAS TO BE QUASHED. 12. ON THIS ASPECT, IT IS RELEVANT TO REFER TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN LAHMEYER HOLDI NG GMBH VS. DEPUTY DIRECTOR OF INCOME TAX (2015) 59 TAXMANN.COM 336 (DELHI), WHEREIN VIDE PARAGRAPH NOS. 23 & 24 THE HONBLE HIG H COURT HELD AS FOLLOWS: 23. ONE MORE ASPECT WHICH NEEDS SOME DISCUSSION I S WITH REGARD TO THE SUBMISSION THAT THE DRP HAD NO OCCASI ON TO CONSIDER THE ISSUE OF TAXABILITY OF THE TRANSACTION INVOLVING THE TRANSFER OF THE EXPIRED VALUE OF THE CONTRACT IN EX CHANGE OF SHARES AS NO VARIATION HAD BEEN SUGGESTED BY THE AS SESSING OFFICER ON THIS ASPECT OF THE MATTER IN HIS DRAFT A SSESSMENT 15 ITA NO. 532/DEL/2016 ORDER. IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE REVENUE THAT THE JURISDICTION OF THE DRP IN TERMS OF SECTION 144 C (8) WAS THAT IT COULD CONFIRM, REDUCE OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER, BUT IT COULD NOT INTRODUCE A NEW E LEMENT OF TAX OR VARIATION. IN RESPONSE TO THIS, THE LD.COUNSEL FOR THE PETITIONER DREW OUR ATTENTION TO THE EXPLANATION AD DED AFTER SECTION 144C (8). IT WAS SUBMITTED BY THE LD. COUN SEL FOR THE PETITIONER THAT BY VIRTUE OF THE SAID EXPLANATION, THE DRP ALWAYS HAD THE POWER TO CONSIDER ANY MATTER ARISING OUT OF THE ASSESSMENT PROCEEDINGS RELATING TO THE DRAFT ORDER, NOTWITHSTANDING THAT SUCH MATTER WAS RAISED OR NOT BY THE ELIGIBLE ASSESSEE. SECTION 144C (8) AND THE EXPLAN ATION APPENDED THERETO READS AS UNDER: 144C (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUCE OR EXCHANGE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT SET ASID E ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB - SECTION (5) FUR FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT THE POWER OF THE DISPUTE RESOLUTION PANEL TO ENHANCE THE VARIATION SHALL INCLUDE AND SH ALL BE DEEMED ALWAYS TO HAVE INCLUDED THE POWER TO CONSIDER ANY MATTER ARISING OUT OF THE ASSESSMENT PROCEEDINGS RELATING TO THE DRAFT ORDER, NOTWITHSTANDING THAT SUCH MATTER WAS RAISED OR NOT BY THE ELIGIBLE ASSESSEE. 24. THE SAID EXPLANATION WAS INTRODUCED THROUGH TH E FINANCE ACT OF 2012. BUT, IT WAS TO TAKE EFFECT RETROSPECT IVELY FROM 01.04.2009. THE DISPUTE RESOLUTION PANELS DIRECTI ONS WERE ISSUED AFTER THE EXPLANATION HAD COME INTO OPERATIO N. IN ANY EVENT, THE EXPLANATION IS CLARIFICATORY. READING T HE EXPLANATION WITH SUB SECTION 144C(8), IT IS EVIDENT THAT THE DISPUTE RESOLUTION PANEL COULD EXAMINE THE ISSUES ARISING O UT OF THE ASSESSMENT PROCEEDINGS EVEN THOUGH SUCH ISSUES WERE NOT PART OF THE SUBJECT MATTER OF THE VARIATIONS SU GGESTED BY THE ASSESSING OFFICER. IN THIS LIGHT, IT IS SIGNIFICANT THAT THOUGH THE DRAFT ORDER HAD NOT PROPOSED ANY ADDITIO N WITH REGARD TO THE RESTRUCTURING AND THE SAID TRANSACTIO N, YET, THE DRP HAD ASKED FOR DETAILS OF THE RESTRUCTURING AND HAD EXAMINED THE MATTER. AFTER SUCH EXAMINATION, THE D RP DID NOT DIRECT ANY ADDITION TO BE MADE IN THIS REGARD. IT IS EVIDENT THAT THE DRP FORMED AN OPINION THAT THE TRANSACTION WAS NOT EXIGIBLE 16 ITA NO. 532/DEL/2016 TO CAPITAL GAINS TAX AND, TO CONTEND OTHERWISE, IN THE PURPORTED REASONS FOR RE-OPENING OF THE ASSESSMENT, WOULD BE NOTHING BUT A CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN L AW. (EMPHASIS SUPPLIED BY US) 13. IN VIEW OF THIS BINDING PRECEDENT, WHILE RESPEC TFULLY FOLLOWING THE SAME, WE FIND IT DIFFICULT TO AGREE W ITH THE SUBMISSIONS OF THE LD. AR, AS SUCH, WE REJECT THE S AME. 14. LD. AR FURTHER ARGUED THAT THE DRP VIDE PARAGRA PH NO. 6.10(1) DIRECTED THE AO TO COMPUTE THE DISALLOWANCE U/S 40(A)(I) OF THE ACT IN ACCORDANCE WITH THE CBDT CIR CULAR NO. 3/2015 DATED 12.02.2015 AND THE AO WAS EXPECTED TO VERIFY THE FACTUAL SITUATION WHILE COMPUTING THE DISALLOWA NCE U/S 40(A)(I) OF THE ACT. LD. COUNSEL DREW OUR ATTENTIO N TO PAGE NOS. 547 TO 558 OF THE PAPER BOOK, CONTAINING THE SUBMIS SIONS MADE BY THE ASSESSEE BEFORE THE LD. DRP AND SUBMITT ED THAT NO SUFFICIENT TIME WAS GRANTED FOR SUBMITTING THE R ESPONSE OF THE ASSESSEE ON THIS ASPECT, AND THE AO ALSO DID NO T DO ANY EXERCISE PURSUANT TO THE DIRECTIONS OF THE LD. DRP BUT PROCEEDED TO COMPUTE THE DISALLOWANCE. LD. AR SUBM ITS THAT WHILE COMPUTING THE DISALLOWANCE U/S 40(A)(I) OF TH E ACT THE AO SHOULD HAVE CONSIDERED THE FACTUAL SITUATION THAT H AS A BEARING 17 ITA NO. 532/DEL/2016 ON THE COMPUTATION OF DISALLOWANCE U/S 40(A)(I) OF THE ACT. FROM A READING OF THE ASSESSMENT ORDER, WE FIND THA T THE AO DID NOT CONSIDER ANY FURTHER FACTS WHILE COMPLYING WITH THE DIRECTIONS OF THE DRP, AS SUCH, THIS FACT NEEDS VER IFICATION AT THE END OF THE AO, AFTER AFFORDING AN OPPORTUNITY T O THE ASSESSEE TO FURNISH THE REQUISITE DETAILS THAT HAVE A BEARING ON THE DISALLOWANCE U/S 40(A)(I) OF THE ACT. WE, THER EFORE, SET ASIDE THIS ASPECT TO THE FILE OF THE AO. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 12.09.2017 SD/- SD/- (N.K. SAINI) (K. N. CHARRY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12.09.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI 18 ITA NO. 532/DEL/2016 DRAFT DICTATED ON 04.09.2017/05.09.2017 DRAFT PLACED BEFORE AUTHOR 06.09.2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 12.9.17 APPROVED DRAFT COMES TO THE SR.PS/PS 12.9.17 KEPT FOR PRONOUNCEMENT ON 12.9.17 FILE SENT TO THE BENCH CLERK 14.9.17 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.
