Doosan Power Systems India Private Limited, Gurgaon V. DICT, CHENNAI

ITA 581/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7881 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANJANEYALU IRS
• Keywords: Depreciation; Transfer pricing; Earning of tax free income; Commercial expediency
• Section: 43B; 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! '#$ . %&%' , ( $) * [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO. 581/MDS/2016 / ASSESSMENT YEAR : 2011-2012. DOOSAN POWER SYSTEMS INDIA PVT. LIMITED, 16 TH FLOOR, DLF SQUARE, JACARANDA MARG, NEAR NH-8, DLF PHASE-II, GURGAON 122 002. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1) CHENNAI. [PAN AAACI 6830M] ( +, / APPELLANT) ( -.+, /RESPONDENT) / APPELLANT BY : SHRI. RAGHUNATHAN SAMPATH, ADV /RESPONDENT BY : SHRI. ANJANEYALU, IRS, CIT. /DATE OF HEARING : 29-11-2016 ! /DATE OF PRONOUNCEMENT : 14-12-2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE, IT ASSAILS AN ORDER DATED 22.02.2016 OF THE LD. ASSESSING OFFICER PASSED PUR SUANT TO DIRECTIONS ITA NO. 581/MDS/2016. :- 2 -: ISSUED BY THE LD. DISPUTE RESOLUTION PANEL (IN SHOR T THE DRP) U/S.144C(3) OF THE INCOME TAX ACT, 1961 (IN SHORT T HE ACT). 2. ASSESSEE HAS RAISED ALTOGETHER FOURTEEN GROUNDS OF WHICH GROUNDS NO.1 & 14 ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICATION. GROUND NO.13 IS ON LEVY OF INTEREST U/S.234B AND 234C OF THE ACT WHICH ARE CONSEQUENTIAL IN NATURE. 3. VIDE ITS GROUNDS 2 TO 4, ASSESSEE ASSAILS THE TRA NSFER PRICING ADJUSTMENTS MADE WITH REGARD TO ENGINEERIN G SERVICES RENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRI SES ABROAD AND IMPUTING OF INTEREST ON ALLEGED DELAY IN COLLECTIO N OF RECEIVABLES FROM ASSOCIATED ENTERPRISES. APART FROM THIS, ASSESSEE HAS ALSO RAISED CERTAIN CORPORATE TAX GROUNDS WHICH ASSAILS DISAL LOWANCES OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND, DISALLOW ANCE U/S.14A OF THE ACT, DISALLOWANCE OF DEPRECIATION ON GOODWILL AN D NOT GIVING CREDIT FOR TAX DEDUCTED AT SOURCE AND ADVANCE TAX. 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT OUT OF THE VERY MANY GROUNDS ASSAILING THE TRANSFER PRICING ADJUSTM ENT HE WAS PRESSING THOSE SEEKING EXCLUSION OF M/S. MAHINDRA C ONSULTING ENGINEERS LIMITED, M/S. TCE CONSULTING ENGINEERING LTD, M/S. IBI CHEMATUR (ENGINEERING & CONSULTANCY) LTD AND M/S. K ITCO LTD FROM THE LIST OF COMPARABLES CONSIDERED BY THE LD. TPO AND C ONFIRMED BY THE LD. ITA NO. 581/MDS/2016. :- 3 -: DRP, FOR BENCH MARKING THE INTERNATIONAL TRANSACT IONS COMPRISING OF ENGINEERING SERVICES RENDERED BY THE ASSESSEE TO IT S ASSOCIATED ENTERPRISES. LD. AUTHORISED REPRESENTATIVE ALSO SU BMITTED THAT HE WAS ALSO PRESSING THE GROUNDS SEEKING INCLUSION OF M/S . TECHNIP K T INDIA LTD AND L & T GULF PVT. LTD IN THE LIST OF COMPAR ABLES. AS PER THE LD. AUTHORISED REPRESENTATIVE, SPECIFIC GROUNDS WERE RA ISED BEFORE LD.DRP ON THESE EXCLUSIONS AND INCLUSIONS, BUT LD. DRP HAD SUMMARILY DISMISSED ITS CLAIM WITHOUT PROPERLY ADJUDICATING A S TO HOW THESE COMPANIES FUNCTIONALLY WERE COMPARABLE OR NOT COM PARABLE TO THE ASSESSEE. AS PER THE LD. AUTHORISED REPRESENTATIVE ALL SUPPORTING DOCUMENTATION LIKE ANNUAL REPORTS OF THESE COMPANIE S WERE FILED BEFORE THE LD. DRP BUT PROPER CONSIDERATION WAS NOT GIVEN BY THE LD. DRP. AS FOR THE ADJUSTMENT MADE FOR DELAY IN COLLEC TION IN COLLECTION OF RECEIVABLES, LD. AUTHORISED REPRESENTATIVE SUBMITTE D THAT ONCE WORKING CAPITAL ADJUSTMENT WERE CARRIED OUT ON THE PLI OF COMPARABLES AS WELL AS THAT OF THE ASSESSEE IT WOULD SUBSUME THE IMPACT OF DELAY IN COLLECTION OF RECEIVABLES. 5. ON THE CORPORATE TAX GROUNDS, THE LD. AUTHORISED REPRESENTATIVE ALLUDING TO THE DISALLOWANCE OF EMP LOYEES CONTRIBUTION TO PROVIDENT FUND SUBMITTED THAT THE LD. DRP HAD FA ILED TO CONSIDER THE LAW AS IT STOOD NOW, WHICH CLEARLY ADMITTED SUCH A LLOWANCE OF THE REMITTANCES WHEN MADE BEFORE THE DUE DATE FOR FILIN G THE RETURN. AS ITA NO. 581/MDS/2016. :- 4 -: FOR THE DISALLOWANCE U/SEC. 14A OF THE ACT, LD. AU THORISED REPRESENTATIVE SUBMITTED THAT AN ERRONEOUS PRESUMPT ION WAS TAKEN BY THE LD. DRP THAT LOAN FUNDS WERE UTILIZED FOR MAKIN G INVESTMENTS WHICH YIELDED TAX FREE INCOME. COMING TO THE CLAIM OF D EPRECIATION ON GOODWILL WHICH WAS NOT ALLOWED, LD. AUTHORISED REP RESENTATIVE SUBMITTED THAT WHETHER ASSESSEE HAD PREFERRED SUCH A CLAIM WAS IMMATERIAL, SINCE IT WAS A STATUTORY ALLOWANCE. AS PER THE LD. AUTHORISED REPRESENTATIVE NONE OF THESE ISSUES WER E PROPERLY ADJUDICATED BY THE LD. DRP. 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IT IS NOT DISPUTED THAT THE ADJUSTMEN TS THAT WERE SUSTAINED WITH REGARD TO ALP OF THE INTERNATIONAL T RANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE CONFINED TO THE EN GINEERING SERVICES SEGMENT AND IMPUTED INTEREST ON DELAY IN COLLECTI NG THE RECEIVABLES. ASSESSEE AND LD. TPO HAD FOLLOWED THE TRANSACTIONAL NET MARGIN METHOD FOR ANALYZING THE PRICING OF THE INTERNATION AL TRANSACTIONS WITH ASSOCIATED ENTERPRISES UNDERTAKEN BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. ASSESSEE HAD SELECTED SEVEN COMPARABLES IN ITS TP STUDY YIELDING AN AVERAGE PLI OF 7.37%. LD. TP O AFTER CONSIDERING ITA NO. 581/MDS/2016. :- 5 -: THE COMPARABLES SELECTED BY THE ASSESSEE RETAINED FOUR OUT OF THEM AND ADDED ANOTHER NINE COMPARABLES CHOSEN BY HIM FR OM THE SAME DATABASE AS WAS CONSIDERED BY THE ASSESSEE. THE TH IRTEEN COMPARABLES SELECTED BY THE LD. TPO AND AVERAGE PLI READ AS UNDER:- 1 ACROPETAL TECHNOLOGIES 14.26% 2 I DESIGN ENGG SOLUTIONS 14.13% 3 KLG SYSTEL LTD 16.42% 4 CSS TECHNERGY LTD 10.45% 5 SYNETAIROS TECHNOLGIES LTD 12.17% 6 VAMA INDUSTRIES (-) 0.39% 7 TELECOMMUNICATIONS (-) 2.69% 8 ACCUSPEED ENG. SERVICES 10.49% 9 KIRLOSKAR CONSULTANTS LTD 2.29% 10 MAHINDRA CONSULTING ENGINEERS LTD 29.52% 11 TCE CONSULTING ENGINEERS LTD. 26.27% 12 KITCO LTD 27.45% 13 IBI CEHMATUR ENGG & CONSULTANCY LTD 25.96% AVERAGE MARGIN ON COST OF COMPARABLES. 14.33% THE ADJUSTMENT PROPOSED BY THE LD. TPO BASED ON THE ABOVE PLI WAS AS UNDER:- OP/OC OF THE ASSESSEE COMPANY (A) 7.61% AVERAGE MARGIN OF COMPARABLES (B) 14.33% DIFFERENCE IN MARGINS (C) 6.72% VALUE OF INTL. TRANSACTION FOR ENG & DESIGN SERVICES 28,11,30,900 EXPECTED OP PROFIT @14.33% 29,86,86,886 ITA NO. 581/MDS/2016. :- 6 -: UPWARD ADJUSTMENT PROPOSED 1,75,55,986 8 . BEFORE LD. DRP ASSESSEE HAD ASSAILED THE COMPUTAT ION OF PLI OF THE SELECTED COMPANIES WHICH ACCORDING TO ASSESS EE WAS MADE DISREGARDING THE ANNUAL REPORT OF SUCH COMPANIES. THE SAID GROUND WAS DESPOSED OF THE LD.DPR WITH THE FOLLOWING DIREC TIONS. 3.2 THE SUBMISSIONS OF THE ASSESSEE AS REGARDS ERR OR IN CALCULATION OF ARITHMATIC MEAN, HAVE DULY BEEN CONSIDERED. THE TPO IS DIRECTED TO VERIFY THE SAME FROM RECORDS AS TO WHETHER SOME ARITHMETICAL ERRORS ARE THERE AND MAKE NECESSARY CORRECTION, IF REQUIRED. ASSESSEE HAD ALSO ASSAILED INCLUSION OF M/S. MAHIND RA CONSULTING ENGINEERS LIMITED, M/S. TCE CONSULTING ENGINEERING LTD, M/S. IBI CHEMATUR (ENGINEERING & CONSULTANCY) LTD AND M/S. K ITCO LTD IN ITS OBJECTION NO.4 AND ALSO ASSAILED EXCLUSION OF M/S. TECHNIP K T INDIA LTD, L & T GULF PVT. LTD AND M/S. DEVELOPMENT CON SULTANTS PVT. LTD AS PROPER COMPARABLES AS ITS OBJECTION NO.5. LD. DRP HAS GIVEN THE FOLLOWING DIRECTION ON THESE OBJECTIONS:- THE ASPECTS OF FRESH TP STUDY, SELECTION OF COMPARABLES, OPPORTUNITY TO ASSESSEE IN FORM OF SCN AND REJECTION/ SELECTION OF COMPARABLES WITH JUSTIFICATION HAVE ALREADY BEEN DISCUSSED UNDER PRECEDING PARA IN THIS ORDER. MARGINS OF THE COMPARABLES HAVE BEEN COMPUTED AND INFORMED TO THE ASSESSEE. TWO OF THE COMPARABLES SELECTED BY THE ASSESSEE HAVE BEEN ACCEPTED BY THE TPO. REASONS ARE SPECIFIED BY TPO FOR REJECTING THE COMPARABLES SUGGESTED BY THE ASSESSEE. HENCE, THIS PANEL FINDS THE APPROACH AND PROCESS ADOPTED BY ITA NO. 581/MDS/2016. :- 7 -: THE TPO ARE PROPER. THEREFORE, THE OBJECTIONS IN TH IS REGARD ARE NOT ACCEPTABLE. 9 . VIZ-A-VIZ WORKING CAPITAL ADJUSTMENT SOUGHT BY TH E ASSESSEE, LD.DRP OBSERVED THAT FACTUAL DETAILS REGARDING WORK ING CAPITAL POSITION OF THE COMPARABLES WERE NOT FURNISHED BY THE ASSESS EE AND HENCE ITS REQUEST FOR GRANTING SUCH ADJUSTMENT COULD NOT BE G RANTED. IN SO FAR AS IMPUTING INTEREST ON DELAYED PAYMENT FROM ASSOCI ATED ENTERPRISE WAS CONCERNED, OBSERVATION OF THE LD. DRP WAS THAT THE EXTENDED PAYMENT TERMS GIVEN TO ASSOCIATED ENTERPRISE WITHOU T CHARGING INTEREST WAS EXIGIBLE TO A TRANSFER PRICING ADJUST MENT, EVEN IF COMMERCIAL EXPEDIENCY WAS SHOWN BY THE ASSESSEE. A S FOR ASSESSEES CLAIM FOR DEPRECIATION ON GOODWILL, OBSERVATION O F THE LD. DRP WAS THAT NO SUCH DISALLOWANCE MADE BY THE LD. ASSESSIN G OFFICER AND NO CLAIM WAS PREFERRED BY THE ASSESSEE DURING THE ASSE SSMENT PROCEEDINGS. COMING TO THE DISALLOWANCE FOR DELAYE D REMITTANCE OF EMPLOYEES CONTRIBUTION OF PROVIDENT FUND, OBSERVAT ION OF THE LD. DRP WAS THAT JUDGMENT OF HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. MADRAS RADIATORS AND PRESSING LTD (2013) 26 4 ITR 620 WENT IN FAVOUR OF THE REVENUE AND IT WAS RIGHTLY DISALLO WED BY THE LD. ASSESSING OFFICER. IN SO FAR AS DISALLOWANCE U/S.1 4A OF THE ACT WAS CONCERNED, LD. DRP HELD THAT SUCH DISALLOWANCE WAS JUSTIFIED EVEN THOUGH ASSESSEE HAD NOT EARNED ANY EXEMPTED INCOME. ITA NO. 581/MDS/2016. :- 8 -: 10. IN OUR OPINION, THE LD. DRP HAD DISPOSED OFF THE GROUNDS TAKEN BY THE ASSESSEE IN A SUMMARY MANNER WITHOUT P ROPERLY CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE. AS FOR THE COMPARABLES SOUGHT TO BE EXCLUDED/INCLUDED BY THE A SSESSEE, THE LD. DRP HAD NOT COMPARED THE FUNCTIONAL PROFILE OF THOS E COMPANIES WITH THAT OF THE ASSESSEE BEFORE DECIDING ON THE DESIRA BILITY OF THEIR EXCLUSION /INCLUSION. 11. IN SO FAR AS WORKING CAPITAL ADJUSTMENT SOUGHT BY THE ASSESSEE WAS CONCERNED, LD. DRP HAD NOT CONSIDERED THE PRESENT POSITION OF LAW AS LAID BY A PLETHORA OF DECISIONS OF THIS TRIBUNAL WHICH MANDATED SUCH ADJUSTMENT AS A NECESSARY ONE WHILE COMPUTING PROFIT LEVEL INDICATOR. AS FOR INTEREST ON DELAYED RECEIVABLES, LD. DRP HAD NOT DEALT WITH THE OBJECTIONS OF THE A SSESSEE AGAINST COMPARING THE RECEIVABLES WITH PURE LOANS, WITHOUT CONSIDERING THE COMMERCIAL EXPEDIENCY FACTOR. ON THE CLAIM OF DEPR ECIATION OF GOODWILL, LD. DRP HAD NOT GIVEN ANY FINDING WHY TH E CLAIM MADE FOR THE FIRST TIME BEFORE IT COULD NOT BE CONSIDERED. AS FOR THE REMITTANCES TO EMPLOYER CONTRIBUTION TO PROVIDENT FUND, LD. DEP ARTMENTAL REPRESENTATIVE HAD NOT CONSIDERED THE EFFECT OF S ECTION 43B ON SUCH CLAIM, WHERE REMITTANCES OF THE DEDUCTED AMOUNT WER E MADE BEFORE THE DUE DATE OF FILING THE RETURN. COMING TO THE D ISALLOWANCE MADE U/SEC. 14A OF THE ACT, THE LD. DRP HAD NOT ITA NO. 581/MDS/2016. :- 9 -: ADJUDICATED AS TO HOW SUCH DISALLOWANCE COULD BE MA DE WHERE THE CLAIM OF THE ASSESSEE WAS THAT IT HAD NOT EARNED AN Y EXEMPT INCOME. 12 . IN THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE O PINION THAT ALL THE ISSUES RAISED BY THE ASSESSEE REQUIRES A FR ESH LOOK BY THE LD. DRP. WE THEREFORE SET ASIDE THE ORDERS OF THE LD. DRP AS WELL AS LD. ASSESSING OFFICER AND REMIT ALL THE ISSUES RAISED B Y THE ASSESSEE TO THE LD. DPR FOR CONSIDERATION AFRESH IN ACCORDANCE WIT H LAW. THEREAFTER, LD. ASSESSING OFFICER SHALL REFRAME THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR CONSIDERING SUCH DIRECTIONS. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED A S ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 14TH DAY OF DE CEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( '#$ . %&%' ) (ABRAHAM P. GEORGE) ( / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 14TH DECEMBER, 2016 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF