TECHNIMONT ICB P.LTD, MUMBAI V. DCIT RG 9(3), MUMBAI

ITA 6394/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70958 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 21-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 18-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Keywords: Related party transaction; Transfer pricing; Double taxation relief; International transaction; Additional evidence
• Section: 143(3); 234B; 133(6); 92

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , / !' , # $ % BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 M/S.TECNIMONT ICB PVT. LTD., CHINCHOLI BUNDER, 504, LINK ROAD, MALAD (W), MUMBAI - 400 064 / VS. THE DCIT 9(3), AAYKAR BHAVAN, MK ROAD, NEW MARINE LINES, MUMBAI 400020 ( # ./ )* ./ PAN/GIR NO. : AAACI 2628B ( (+ / APPELLANT ) .. ( ,-(+ / RESPONDENT ) APPELLANT BY SHRI M.P.LOHIA RESPONDENT BY SHRI AJEET KUMAR JAIN . /# / DATE OF HEARING : 21/08/2013 01' . /# / DATE OF PRONOUNCEMENT : 28/08/2013 2 / O R D E R PER I.P.BANSAL, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ASSESSMENT ORDER DATED 24/09/2012 PASSED UNDER SECT ION 143(3) R.W.S. 144C(13) OF INCOME TAX ACT, 1961(THE ACT) FOR ASSES SMENT YEAR 2008-09. THE GROUNDS OF APPEAL READ AS UNDER: . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 2 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TECNIMONT ICB PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE APPELLANT) RESPECTF ULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE FINAL ORDER PASSED BY THE LEARNE D DEPUTY COMMISSIONER OF INCOME-TAX - 9(3) (AO), IN PURSUANCE OF THE DIREC TIONS ISSUED BY DISPUTE RESOLUTION PANEL- II (DRP), MUMBAI UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) ON THE FOLLOWING GROUNDS. THE FOLLOWING GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE AO/ TRANSFER PRICING OFFICER (TPO) BASED ON DIRECTIONS OF DRP: REJECTION OF AUDITED SEGMENTAL RESULTS AND FOLLOWIN G AN ENTITY LEVEL APPROACH 1. ERRED IN MAKING THE ADDITION OF RS 24,09,18,616 BEING TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF REJECTION OF SEGMENTAL ACC OUNTS OF THE APPELLANT AND IN DETERMINING THE ARMS LENGTH PRICE OF THE INTERN ATIONAL TRANSACTIONS PERTAINING TO PROJECT/ EPC SERVICES USING ENTITY LEVEL APPROAC H. REJECTION OF COMPARABLE 2. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN REJECTI NG NICCO CORPORATION LIMITED AS A COMPARABLE ON ACCOUNT OF FUNCTIONAL DIFFERENCES. INCORRECT COMPUTATION OF MARGINS 3. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN COMPUTI NG THE INCORRECT MARGINS OF THE FOLLOWING COMPARABLES OUT OF THE FINAL SET OF COMPA RABLES: I. BGR ENERGY SYSTEMS LIMITED II. ENGINEERS INDIA LIMITED III. TECHNO ELECTRIC AND ENGINEERING COMPANY IV. UB ENGINEERING INCORRECT MARGIN COMPUTATION OF THE APPELLANT AT TH E ENTITY LEVEL 4. ERRED IN NOT INCLUDING CERTAIN OPERATING INCOME HEADS WHILE COMPUTING THE NET PROFIT OF THE ASSESSEE AT AN ENTITY LEVEL. USING SINGLE YEAR DATA 5. ERRED IN USING DATA WHICH WAS NOT CONTEMPORANEOU S AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDU CTING THE TRANSFER PRICING STUDY BY THE ASSESSEE. 6. ERRED IN USING SINGLE YEAR DATA IN CONDUCTING TH E COMPARABILITY ANALYSIS. . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 3 VARIATION OF 5% FROM THE ARITHMETIC MEAN 7. ERRED IN NOT GRANTING THE BENEFIT OF PROVISO TO SECTION 92C(2) OF THE ACT TO THE APPELLANT. ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE 8. ERRED IN MAKING AN ADDITION OF RS 5,27,907 BEING TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF DETERMINATION OF THE ARMS LENGTH PRI CE ON THE COUNTER GUARANTEE PROVIDED BY THE APPELLANT AT THE RATE OF 3% OF THE GUARANTEE AMOUNT. 9. ERRED IN USING SELECTIVE INFORMATION! DOCUMENTS OBTAINED BY THE TPO UND\ SECTION 133(6) OF THE ACT AND WHICH ARE NOT AVAILAB LE IN THE PUBLIC DOMAIN FOR THE DETERMINATION OF ALP ON THE CORPORATE GUARANTEE PRO VIDED BY THE APPELLANTS TAX CREDITS 10. ERRED IN NOT ALLOWING THE TDS CREDIT OF RS.41,1 3,253, DTAA CREDIT OF RS1 1,40,59,219 AND LEVYING INTEREST UNDER SECTION 234B OF RS 25628346. THE APPELLANT CRAVES LEAVE TO ADD/ ALTER/ AMEND/ DE LETE/ WITHDRAW ANY OR ALL OF THE GROUNDS AT OR BEFORE THE HEARING OF THE APPEAL SO AS TO ENABLE THE INCOME TAX APPELLATE TRIBUNAL TO DECIDE THE APPEAL ACCORDING T O LAW. 2. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND OF APPEAL, WHICH READS AS UNDER: TECNIMONT ICB PRIVATE LIMITED (HEREINAFTER REFERRE D TO AS THE APPELLANT) CRAVES LEAVE TO PREFER AN APPEAL ON THE FOLLOWING ADDITION AL GROUND AGAINST THE FINAL ORDER PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX - 9(3) (AO), IN PURSUANCE OF THE DIRECTIONS ISSUED BY DISPUTE RESOL UTION PANEL- II (DRP), MUMBAI UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AO/ DRP: 11. ERRED IN CONSIDERING ENGINEERS INDIA LTD AS A C OMPARABLE COMPANY TO APPELLANT WITHOUT APPRECIATING THAT ENGINEERS INDIA IS A GOVERNMENT COMPANY AND HAS SIGNIFICANT RELATED PARTY TRANSACTIONS. THE ASSESSEE CRAVES, TO CONSIDER THE ABOVE GROUND O F APPEAL WITHOUT PREJUDICE TO OTHER GROUNDS AND CRAVES LEAVE TO ADD, ALTER, DELET E OR MODIFY THE ABOVE GROUND OF APPEAL. . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 4 3. GROUND NO.1 TO 7 RELATE TO TP ADJUSTMENT OF RS.2 4,09,18,616/- ON ACCOUNT OF ARMS LENGTH PRICE (ALP) OF INTERNATIONA L TRANSACTIONS PERTAINING TO PROJECT/EPC SERVICES. 3.1 REFERENCE UNDER SECTION 92CA OF THE ACT WAS MAD E BY THE AO FOR COMPUTATION OF ARMS LENGTH PRICE IN RESPECT OF FOL LOWING INTERNATIONAL TRANSACTIONS : TRANSACTIONS AMOUNT (RS.) 1. TECHNICAL SERVICES RENDERED (EPC) 245900567 2. EXECUTION OF EPC PROJECTS 1149503287 3. ELECTRICAL AND INSTRUMENTATION WORK 8323969 11 TOTAL 2227800765 3.2 IN THE TP STUDY THE ASSESSEE HAS BENCH MARKED I TS AFOREMENTIONED TRANSACTIONS USING TNMM WITH PLI AS OPERATING PROFI T TO OPERATING REVENUE. THE ASSESSEE SELECTED SEVEN COMPARABLES AND THREE Y EARS AVERAGE OP/SALES WAS CALCULATED AT 4.57%. IT WAS CLAIMED THAT ASSES SEE HAS EARNED OP/SALES OF 9.41% (OP/TC 10.42%). HOWEVER, THE ENTITY LEVEL PR OFITABILITY WAS 2.85% (OP/TC 2.92%). THUS IT WAS CLAIMED IN THE TP STUDY THAT INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES(AES) WERE AT ARMS LENGTH. 3.3 IN PARA 4.2 LD. TPO HAS MENTIONED THAT DURING THE COURSE OF PROCEEDINGS BEFORE HIM THE ASSESSEE HAD SUBMITTED A UDITED SEGMENTAL ACCOUNTS IN RESPECT OF ITS ASSOCIATED ENTERPRISE AND NON-ASSOCIATED ENTERPRISES ACCOUNTS AND SEGMENTAL MARGINS ARE AS F OLLOWS: (IN RS.000) PARTICULARS AE TRANSACTIONS NON AE TRANSACTION TOTAL INCOME FROM OPERATIONS 2228306 291459 TOTAL COST 2018404 420347 PROFIT BEFORE TAX 209902 - 128888 OPERATING PROFIT/OPERATING COST 10.40% - 30.6 6% . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 5 OPERATING PROFIT/SALES 9.42 - 44.22% LD. TPO DID NOT ACCEPT SUCH SUBMISSION OF THE ASSES SEE ON THE GROUND THAT IT WAS NOT CLARIFIED THAT AS WHETHER MATERIAL/SERVICE S TAKEN FROM AES WERE UTILIZED FOR NON-AES JOBS OR VICE-VERSA. THUS LD. TDO OBSERVED THAT IN ABSENCE OF SUCH INFORMATION IT IS NOT CLEAR THAT AS TO AE OR NON-AE SEGMENTAL ACCOUNTS AS SUBMITTED BY THE ASSESSEE ARE ACTUALLY INSULATED. LD. TPO FURTHER OBSERVED THAT IN RESPECT OF NON-AE TRANSACTIONS THE ASSESSEE HAS SHOWN A LOSS OF 30.66% ON THE TURN OVER OF RS.29.14 CRORES WHIC H IS APPARENTLY AGAINST THE TREND OF THE SECTOR IN WHICH ASSESSEE OPERATES. HE REQUIRED THE ASSESSEE TO EXPLAIN THE LOSS OF RS.12.88 CRORES INCURRED BY THE ASSESSEE IN RESPECT OF NON- AE SEGMENT AND WAS REQUIRED TO FURNISH THE BASIS OF ALLOCATION OF EXPENSES WITH EVIDENCES SUCH AS COPIES OF TENDER DOCUMENTS, COPIES OF BILLS IN SUPPORT OF EXPENSES INCURRED, COPIES OF DOCUMENTS ETC. IT IS NOTED BY THE TPO THAT VIDE ORDER SHEET NOTING DATED 7/9/2011 THE ASSESSEE WAS REQUIRED TO FURNISH THE FOLLOWING INFORMATION: (I) THE BASIS OF ALLOCATION OF INDIRECT COST TO AE AND NON-AE ALONG WITH THE NECESSARY EVIDENCES. (II) COMPLETE DETAILS WITH EVIDENCES OF THE BIDDING COST . (III) AUDIT NOTES WITH COMPLETE MATERIAL ON WHICH THE IND EPENDENT AUDIT HAD RELIED TO CARRY OUT THE SEGMENTAL AUDIT AND ALSO TO PRODUCE THE WORKING PAPERS FOR THE SAME. 3.4 LD. TPO FURTHER OBSERVED THAT SUCH INFORMATION WAS NOT PRODUCED BY THE ASSESSEE AND IT WAS TRIED TO EXPLAIN THAT THE LOSS OF RS.12.88 CRORES WAS MAINLY INCURRED AT PRE-BIDDING STAGE OF 11 PROJECTS. THE ASSESSEE FAILED TO WIN THOSE CONTRACTS, EXPENDITURE RESULTED INTO NET LOSS. LD. TPO OBSERVED THAT ASSESSEE HAS ONLY SELECTIVELY PRODUCED FEW BILLS AND VOUCHER S WHICH ARE OF NO USE SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE PAYM ENTS WERE MADE IN RESPECT OF PRE-BIDDING EXPENSES. IT IS ALSO OBSERVED BY HIM T HAT DURING THE COURSE OF . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 6 PROCEEDINGS IT WAS STATED BY THE ASSESSEE THAT IT W ORKED AS A SUPPLIER OF TECHNICALLY TRAINED MANUFACTURER FOR VARIOUS PROJEC TS AND DOES NOT MANUFACTURE ANYTHING FOR THE PURPOSE OF EXECUTING T HOSE PROJECTS. IT WAS FURTHER STATED THAT WHENEVER THE ASSESSEE BIDS FOR A CONTRACT IT EVALUATE THE COSTING OF THE PROJECT, CLAUSE FOR THE QUOTATIONS O F VARIOUS PARTIES AND THEN SUBMIT ITS BID. THESE BIDDING EXPENSES WERE INCURR ED IN RESPECT OF PROJECTS PERTAINING TO PUBLIC SECTOR UNDERTAKINGS AND ASSESS EE COULD NOT GET THOSE CONTRACTS, THEREFORE, LOSS WAS INCURRED. ON THESE SUBMISSIONS OF THE ASSESSEE LD. TPO OBSERVED THAT IN THE PROCESS OF BIDDING 11 CONTRACTS THE ASSESSEE HAS ACTUALL LOST RS.1.17 CRORES PER CONTRACT JUST FOR S UBMITTING BIDDING DOCUMENTS. THERE IS NO EVIDENCE ON THE RECORD THAT THE ASSESSE E PAID NON-REFUNDABLE EARNEST MONEY DEPOSIT IN RESPECT OF ALL SUCH BIDS A ND THE SAID MONEY GET FORFEITED LEAVING THE ASSESSEE SADDLED WITH THE LOS S. LD. TPO FURTHER OBSERVED THAT IN ABSENCE OF EVIDENCE CORROBORATING THE CLAI MED LOSS CORRESPONDING COST ON NON-AE SEGMENTS WAS ATTRIBUTABLE TO AE SEGMENT AND IN THIS MANNER LD. TPO ALSO HELD THAT SEGMENTAL ACCOUNTS FURNISHED BY THE ASSESSEE WERE NOT RELIABLE AND THEREFORE, REJECTED. THEREFORE, LD. T PO ADOPTED PLI AT ENTITY LEVEL WHICH HE HAS COMPUTED AT 2.92% AS UNDER: RS. CRORES CONTRACT REVENUE 251.92 TOTAL COST (OTHER THAN INTEREST COST) 244.75 PROFIT 7.17% OP/TC 2.92% OP/SALES 2.85% 3.5 FOR THE SAKE OF COMPLETENESS THE ARITHMETICAL M EAN OF COMPARABLES COMPUTED BY THE ASSESSEE AT 4.57% WAS AS UNDER: COMPANY 2006 2007 2008 WEIGHTED AVERAGE BGR ENERGY SYSTEMS LTD. 5.26 8.56 8.90 8.4 6 ENGINEERS INDIA LTD. 10.73 3.07 22.12 11.96 NICCO CORPORATION LTD. (16.53) (5.81) 0.72 (4 .59) RELIANCE INFRASTRUCTURE LTD. 14.60 7.17 NA 9.34 TATA PROJECTS LTD. 3.84 1.45 NA 2.24 TECHNO ELECTRIC & ENGG. COMPANY LTD. 4.98 10.30 11.62 9.56 UB ENGINEERING LTD. (2.40) (7.68) 6.61 (1 .09) . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 7 ARITHMETIC MEAN 4.57 HOWEVER, AS UPDATED MARGIN OF ABOVE COMPARABLES AS ON 31/3/2008 WAS AVAILABLE THE MEAN AVERAGE OF THE ABOVE COMPARABLES WAS COMPUTED AS UNDER: COMPANY OP/TC BGR ENERGY SYSTEMS 10.75 ENGINEERS INDIA LTD. 28.9 TECHNO ELECTRIC AND ENGG COMPANY 13.56 UB ENGG 11.75 R INFRA 10.06 TATA PROJECTS 4.58 AVERAGE 13.26 3.6 EXAMINING THE AFOREMENTIONED COMPARABLES IT WAS OBSERVED BY LD. TPO THAT THE COMPARABLE NAMELY NICCO CORPORATION LTD. I S FUNCTIONALLY DIFFERENT FROM THE ACTIVITIES OF THE ASSESSEE. HE, THEREFORE , EXECLUDED THE SAME AND HE PROPOSED A FRESH SET OF COMPARABLES, WHEREIN MEAN MARGING WAS COMPUTED AT OP/TC AT 33.43% AND OP/SALES AT 23.486%. THE DETA ILS ARE AS UNDER: (IN %) OP/TC OP/SALES 1. ENGINEERS INDIA LTD. 28.9 22.42 2 ILFS TRANSPORTATION NETWORK 62.27 38.37 3 ABG INFRALOGISTICS 49.05 32.91 4 SRIRAM EPC 12.69 11.26 5 ASHOKA BUILDCON LTD. 14.24 12.47 AVERAGE 33.43 23.486 3.7 IN RESPONSE TO THE AFOREMENTIONED PROPOSED ACTI ON OF LD.TPO THE ASSESSEE OBJECTED TO INCLUSION OF ABG INFRALOGISTIC S LTD.; (B) ASHOKA BUILDCON LTD.; (C)ILFS TRANSPORTATION NETWORK AS COMPARABLE . FURTHER ASSESSEE REQUESTED TO INCLUDE ONE MORE COMPARABLE NAMELY SRI RAM EPC AS SUITABLE COMPARABLE AND ENGINEERING INDIA LTD. AS COMMON C OMPARABLE. 3.8 FINALLY LD. TPO HAS DETERMINED SEVEN COMPARABLE S AND OP/TC IS COMPUTED AT 13.18429 AS BELOW: COMPANY OP/TC REMARKS BGR ENERGY SYSTEMS 10.75 ASSESSEES ENGINEERS INDIA LTD. 28.9 ASSESSEES TECHNO ELECTRIC AND ENGG COMPANY 13.56 ASSESSEES UB ENGG 11.75 ASSESSEES R INFRA 10.06 ASSESSEES . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 8 TATA PROJECTS 4.58 ASSESSEES SRIRAM EPC 12.69 TPOS AVERAGE 13.18429 3.9 BY TAKING THE ENTITY LEVEL MARGIN OF THE ASSESE E AT 2.92% THE DIFFERENCE BETWEEN 13.18 AND 2.92% WAS COMPUTED AT RS.24,09,18 ,616/- AS UNDER: OPERATING COST AS PER ANNUAL REPORT A 2,438,751, 000 ARMS LENGTH PROFIT MARGIN ON COST B 13.18% ARMS LENGTH PROFIT C=A+B 321,427,381.80 ARMS LENGTH VALUE OF SALES D+A+C 2,760,178,381.80 LESS: VALUE OF NON-AE SALES E 291,459,000.00 ARMS LENGTH VALUE OF SALES (ADJUSTED)AE F+D-E 2 ,468,719,381.80 95% THEREOF 2,116,410,726.75 105% OF TRASACTION VALUE 2,339,190,803.25 ACTUAL VALUE OF AE SALES H 222,78,00,765 ADJUSTMENT I+F-H 240,918,616.80 ACCORDINGLY, ADDITION WAS MADE. 4. THE AFOREMENTIONED ADDITION MADE BY LD. TPO WA S ADDED BY THE A.O. IN THE DRAFT ASSESSMENT ORDER AGAINST WHICH THE ASSESS EE HAD FILED OBJECTIONS BEFORE DRP, COPY OF THE SUBMISSIONS ON OBJECTIONS IS FILED AT PAGE 181 TO 190 OF THE PAPER BOOK. THE ASSESSEE FIRSTLY OBJECTED T HE ACTION OF THE LD. TPO BY TAKING PLI OF THE ASSESSEE AS ENTITY LEVEL AS ACCOR DING TO ASSESSEE AUDITED SEGMENTAL RESULTS COULD NOT BE REJECTED BY TPO AS T HE BASIS ADOPTED BY THE ASSESSEE WAS SCIENTIFIC AND RATIONAL. BEFORE LD. D RP REFERENCE WAS MADE TO WRITTEN SUBMISSION FURNISHED BEFORE LD. TPO. IT WA S SUBMITTED THAT VIDE LETTER DATED 19/9/2011 IT WAS MENTIONED THAT THE ASSESSEE HAS A MAN HOUR TRACKING SYSTEM. (TMA) WHICH GENERATES MONTHLY REPORTS FOR THE PURPOSE OF TACKING MAN HOURS. THE ENTIRE STAFF FILL TIME SHEET AND TH E SAME IS USED BY THE ASSESSEE TO GENERATE PROJECT WISE MAN HOURS WHICH IN TURN IS USED FOR WORK-IN- PROGRESS(WIP) CALCULATION. IT WAS SUBMITTED THAT T OTAL NUMBER OF MAN HOURS DURING THE FINANCIAL YEAR 2007-08 WERE 904713 AND T HE NUMBER OF MAN HOURS PERTAINING TO THE AE SEGMENT AND NON-AE SEGMENT WER E 605907 AND 192324 RESPECTIVELY. THE BALANCE NUMBER OF HOURS AMOUNTS TO 1,06,482/- . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 9 REPRESENTED BIDDING AND IDLE TIME. TO SUPPORT THES E FACTS THE ASSESSEE ALSO SUBMITTED THE MAN HOUR SUPPORT DETAILS AND MAN HOU R OF E&I DIVISION IN ANNEXURE-1 & 2 WITH THE AFOREMENTIONED SUBMISSIONS. THUS IT WAS SUBMITTED THAT THE SEGMENTAL RESULTS OF THE ASSESSEE COULD NO T BE REJECTED AND LD. TPO WAS NOT JUSTIFIED IN TAKING MARGIN OF THE ASSESSEE AT ENTITY LEVEL. THE OBJECTIONS TAKEN BY THE ASSESSEE BEFORE DRP IN RESP ECT OF THIS ADJUSTMENT WERE OBJECTIONS NO. 1 TO 5 AND THESE OBJECTIONS OF THE A SSESSEE HAVE BEEN REJECTED BY LD. DRP BY HOLDING THAT IT WAS NECESSARY FOR THE ASSESSEE TO SHOW ACCURACY OF SEGMENTAL ACCOUNTS BEYOND THE SHADOW OF DOUBTS AND SUCH ACCOUNTS SHOULD TRULY REFLECT AND WORK OUT A NET PROFIT MARGIN IN R ESPECT OF THE SEGMENTS WHICH HAVE BEEN CULLED OUT. ANY ESTIMATION/APPROXIMATION OR ALLOCATION WHICH IS NOT BASED ON PRIMARY DETAILS/FACTS WOULD LEAD TO APPRO XIMATE WORKING OF PLI LEADING TO NON RELIABLE BENCH MARKING. THE ASSES SEE DID NOT GIVE THE BASIS OF ALLOCATION OF INDIRECT COST TO AE AND NON-AE ALONG WITH NECESSARY EVIDENCES. THE COMPLETE DETAILS WITH EVIDENCES OF THE BIDDING COST HAS NOT BEEN SUBMITTED BEFORE THE TPO AND THE AUDIT NOTE WITH COMPLETE MAT ERIAL ON WHICH THE INDEPENDENT AUDITOR HAD RELIED TO CARRY OUT SEGMENT AL AUDIT WERE ALSO NOT PRODUCED BEFORE THE TPO. THEREFORE, MAINLY RELYIN G UPON THE FINDINGS RECORDED BY LD. TPO, LD. DRT HAS UPHELD THE ADDITIO N AND DID NOT DISCUSS ABOUT THE SUBMISSIONS OF THE ASSESSEE ACCORDING TO WHICH IT WAS SUBMITTED THAT THERE WAS RATIONAL BASIS OF ALLOCATION AND SEG MENTAL WORK OUT AND ALL THE DETAILS WERE SUBMITTED TO THE TPO WHICH ARE PART OF THE TPOS RECORD. 5. AFTER NARRATING THE ABOVE MENTIONED FACTS, IT WA S SUBMITTED BY LD. AR THAT THE ADJUSTMENT MADE BY THE AO IS LIABLE TO BE DELETED ONLY ON ONE ISSUE WHICH IS THE ACCEPTANCE OF SEGMENTAL RESULTS SUBMI TTED BY THE ASSESSEE. HE SUBMITTED THAT IF SEGMENTAL RESULTS IS ACCEPTED T HE MARGIN OF ASSESSEE WILL BE WITHIN THE LIMITS OF SAFE HARBOUR OF +/- 5%. LD. A R FURTHER SUBMITTED THAT ACCORDING TO THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 ONLY SEGMENTAL RESULTS CAN BE CONSIDER ED FOR DETERMINATION OF . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 10 ALP. IN THIS REGARD LD. AR REFERRED TO THE ORDER O F THE TRIBUNAL DATED 25/2/2011 IN ITA NO.7098/MUM/2010, COPY OF WHICH IS PLACED AT PAGES 191 TO 209 OF THE PAPER BOOK. HE SUBMITTED THAT IN THE SAID YEAR THE TPO HAD APPLIED THE RESULTS AT ENTITY LEVEL AS AGAINST THE CLAIM OF THE ASSESSEE THAT THE SAME SHOULD BE ON SEGMENTAL BASIS. IT WAS ACCEP TED BY THE TRIBUNAL THAT FOR DETERMINING ALP SEGMENTAL RESULT SHOULD BE TAKEN IN TO CONSIDERATION. HE INVITED OUR ATTENTION TOWARDS THE FOLLOWING OBSERV ATIONS OF THE TRIBUNAL FROM THE SAID ORDER: 23. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE MAY POINT OUT THAT THERE IS NO DISPUTE BETWEEN THE ASSESSEE AND T HE DEPARTMENT OVER THE METHOD ADOPTED FOR DETERMINING THE ARMS LENGTH PRI CE BEING TNM METHOD. THE NEXT ISSUE FOR CONSIDERATION IS WHETHER TO APPLY TN M METHOD AT ENTITY LEVEL OR AT TRANSACTIONAL LEVEL FOR DETERMINING THE ARMS LENGT H PRICE. THE ASSESSEE HAD SUBMITTED SEGMENTAL RESULTS FOR ITS TRANSACTIONS WI TH A.ES AND TRANSACTIONS WITH NON A.ES. THE TPO REJECTED THE SEGMENTAL RESULTS AS CONTAINED AT PAGE-62 OF PAPER BOOK ON THE GROUND THAT THE SAME WERE NOT AU THENTICATED AND ALSO DID NOT FORM PART OF AUDITED FINANCIAL STATEMENT OF ACCOUNT S. LEARNED COUNSEL, DURING THE COURSE OF HEARING, SUBMITTED BEFORE US THAT THIS OB JECTION WAS NOT BROUGHT TO THE NOTICE OF ASSESSEE. HOWEVER, WHEN IT RECEIVED THE ORDER, THEN IT GOT THE SEGMENTAL RESULTS DULY AUDITED AND FILED THE SAME B EFORE THE DRP AS ADDITIONAL EVIDENCE VIDE ITS PETITION DATED 4.TH MAY 2010. THE DRP HAS SUMMARILY REJECTED THE ASSESSEES ADDITIONAL EVIDENCE OBSERVING THAT T HE SAME WAS NOT FILED BEFORE THE DRP. THEREFORE, THE FIRST ISSUE WHICH ARISES FO R OUR CONSIDERATION IS REGARDING SCOPE OF POWERS OF DRP REG3RDING ENTERTAINING ADDIT IONAL EVIDENCE. IN THIS REGARD, WE MAY REFER TO LEGAL PROVISIONS WHICH HAVE TO BE TAKEN INTO CONSIDERATION WHEN ADDITIONAL EVIDENCE IS FILED BEF ORE THE DRP. SECTION 144C, DEALS WITH REFERENCE TO DRP AND SUB SECTIONS 5, 6 A ND 14, READ AS UNDER: 5. THE DISPUTE RESOLUTION PANEL SHALL, IN A CASE W HERE ANY OBJECTION IS RECEIVED UNDER SUB-SECTION (2), ISSUE SUCH DIRECTIO NS, AS IT THINKS FIT, FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASSESSMENT. 6. THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DIR ECTIONS REFERRED TO IN SUB -SECTION (5), AFTER CONSIDERING THE FOLLOWING, NAME LY - (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) REPORT, IF ANY, OF THE ASSESSING OFFICER, VALUA TION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AUTHORITY; (D) RECORDS RELATING TO THE DRAFT ORDER; (E) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECTE D BY, IT; AND (F) RESULT OF ANY ENQUIRY MADE BY, OR CAUSED TO BE MADE BY, IT . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 11 14. THE BOARD MAY MAKE RULES FOR THE PURPOSES OF TH E EFFICIENT FUNCTIONING OF THE DISPUTE RESOLUTION PANEL AND EXPEDITIOUS DIS POSAL OF THE OBJECTIONS FILED UNDER SUBSECTION (2) BY THE ELIGIBLE ASSESSE E. RULE 4 OF INCOME-TAX (DISPUTES RESOLUTION PENAL) RU LES, 2009, DEALS WITH PROCEDURE FOR FILING OBJECTIONS BEFORE DRP, WHICH R EADS AS UNDER: 4. EACH PANEL SHALL HAVE A SECRETARIAT FOR RECEIVI NG OBJECTIONS, CORRESPONDENCE AND OTHER DOCUMENTS TO BE FILED BY T HE ELIGIBLE ASSESSEE AND SHALL ALSO BE RESPONSIBLE FOR ISSUING NOTICES, CORRESPONDENCE AND DIRECTION IF ANY, ON BEHALF OF THE PANEL. A COMBINED READING OF SECTION 144C R/W RULE 4 OF I NCOME TAX (DISPUTES RESOLUTION PENAL) RULES, 2009, CLEARLY SHOW THAT TH E DRP HAD TO TAKE INTO CONSIDERATION THE EVIDENCE FURNISHED BY THE ASSESSE E BEFORE ISSUING ANY DIRECTIONS. THE PROVISO TO RULE-4B INCOME TAX (DISP UTES RESOLUTION PENAL) RULES, 2009, CLEARLY DEALS WITH ADDITIONAL EVIDENCE AND RE QUIRES THAT IT SHOULD BE SEPARATELY FILED ALONG WITH APPLICATION STATING THE REASONS FOR SO DOING. IN THE PRESENT CASE, LEARNED COUNSEL HAS POINTED OUT THAT THERE IS NO VARIATION IN THE SEGMENTAL RESULTS SUBMITTED BY IT IN COURSE OF PROC EEDINGS BEFORE TPO AND AUDITED SEGMENTAL RESULTS FILED BEFORE THE DRP. THE ONLY OBJECTION FOR NOT CONSIDERING THE SAME WAS THAT THEY WERE NOT AUDITED . THIS WAS ONLY A PROCEDURAL REQUIREMENT AND ONCE THE SAME WAS COMPLIED WITH, TH E AUDITED SEGMENTAL ACCOUNTS SHOULD HAVE BEEN ADMITTED AS ADDITIONAL EV IDENCE BY THE DRP IN ORDER TO IMPART SUBSTANTIAL JUSTICE TO THE ASSESSEE. WE, THEREFORE, ADMIT THE AUDITED SEGMENTAL RESULTS FILED BY THE ASSESSEE VIDE ITS PE TITION DATED 4TH MAY 2010, AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OF FICER FOR DENOVO CONSIDERATION IN ACCORDANCE WITH LAW. 24. NOW, COMING TO THE MAIN ISSUE WHETHER THE SEGME NTAL RESULTS ARE TO BE TAKEN INTO CONSIDERATION OR PROFIT MARGIN AT ENTITY LEVEL IS TO BE CONSIDERED, WE FIND THAT CHAPTER-X INCORPORATES SPECIAL PROVISIONS RELATING TO AVOIDING OF TAX IN REGARD TO INTERNATIONAL TRANSACTIONS AND INCOME FROM INTERNAT IONAL TRANSACTIONS HAS TO BE DETERMINED AT ARMS LENGTH PRICE. THEREFORE, AS PER THE PROVISIONS CONTAINED UNDER SECTIONS 92 TO 94, INTERNATIONAL TRANSACTIONS ARE TO BE TAKEN INTO CONSIDERATION. THEREFORE, SEGMENTAL RESULTS ARE TO BE CONSIDERED AND NOT THE PROFIT AT ENTITY LEVEL. AS REGARDS THE SUBMISSIONS OF LEAR NED DEPARTMENT REPRESENTATIVE THAT WITH REFERENCE TO SEGMENTAL RESULTS, EACH AND EVERY INTERNATIONAL TRANSACTION HAS TO BE CONSIDERED SEPARATELY-BECAUSE ALL THE ACT IVITIES ARE SEPARATE AND PROFIT MARGIN WILL BE DIFFERENT. LEARNED COUNSEL OBJECTED TO THESE SUBMISSIONS POINTING OUT THAT IT IS NOT THE APPEAL FILED BY THE REVENUE BUT BY THE ASSESSEE. HE ALSO SUBMITTED THAT THE TRIBUNAL HAS NO POWER OF ENHANCE MENT AND ONLY SEGMENTAL RESULTS HAVE TO BE CONSIDERED. ON THIS COUNT, WE FI ND THAT TPO HAS NOT AT ALL CONSIDERED THE SEGMENTAL RESULTS AND, THEREFORE, WE REFRAIN FROM MAKING ANY OBSERVATIONS WITH REFERENCE TO THE SUBMISSIONS MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDER IT APPROPR IATE TO ONLY OBSERVE THAT THE ASSESSING OFFICER WILL CONSIDER THE SEGMENTAL RESUL TS AND DETERMINE THE ARMS . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 12 LENGTH PRICE IN ACCORDANCE WITH LAW. CONSEQUENTLY, THESE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR AB OVE OBSERVATIONS. 5.1 LD. AR SUBMITTED THAT THE ASSESSEE IS ABLE TO SHOW THAT THERE IS NO DEFECT IN THE SEGMENTAL AUDIT RESULTS SUBMITTED BY THE ASS ESSEE BEFORE LD. TPO AND LD. TPO AS WELL AS LD. DRP HAVE INCORRECTLY REJECT ED SUCH RESULTS. LD. AR INVITED OUR ATTENTION TOWARDS THE SUBMISSIONS MADE BEFORE LD. TPO AND LD. DRP ALONGWITH NECESSARY DETAILS AND PARTICULARLY RE FERENCE WAS MADE TO THE SUBMISSIONS MADE BEFORE LD. TPO DATED 19/9/2011, CO PY OF WHICH HAS BEEN FILED AT PAGES 158 TO 163 OF THE PAPER BOOK IN WHIC H THE SUBMISSIONS OF THE ASSESSEE REGARDING ALLOCATION OF BIDDING COST AND REVENUE SUPPORTING WERE SUBMITTED ALONGWITH ANNEXURE. 5.2 IN SHORT, IT WAS SUBMITTED BY LD. A.R THAT AS SESSEE MAINTAINS MAN HOUR TACKING SYSTEM AND ON THE BASIS OF DETAILS FURNISHE D BY STAFF MEMBERS IN THEIR TIME SHEET, PROJECT WISE MAN HOUR REPORT WAS GENE RATED BY THE ASSESSEE ON THE BASIS OF WHICH ALLOCATION HAS BEEN MADE. SUCH ALLOCATION CONVERTED INTO THE TERMS OF HOURS WAS PLACED IN THE SHAPE OF A C HART WHICH WAS MADE ANNEXURE-1 TO THE AFOREMENTIONED SUBMISSIONS. REFE RRING TO THE SAID CHART IT WAS SUBMITTED BY LD. AR THAT THE ENTIRE EXPENSE IN RESPECT OF NON-AE BIDDING RELATE TO STAFF. FOR EXAMPLE HE MENTIONED THAT OUT OF TOTAL LOSS OF EPC DIVISION AMOUNTING TO RS.11,18,16,580/- AN AMOUNT OF RS.9,11 ,15,637/- PERTAINS TO SALARY AND BONUS AND CONTRIBUTION TO PF OF THE STAF F RELATING TO EPC DIVISION (RS. 8,10,43,713/- AS SALARY AND BONUS + RS.1,01,06 ,924/- AS CONTRIBUTION TO PF). BALANCE AMOUNT OF RS.2,06,65,942/- PERTAINS T O OTHER EXPENSES AND THUS ENTIRE LOSS OF RS.11,18,16,580/- ON ACCOUNT OF EPC DIVISION WAS IN NO MANNER RELATED TO TRANSACTIONS WITH AE. FOR THE SAKE OF C LARIFICATION IT MAY BE MENTIONED HERE THAT THE LOSS OF RS.12,88,88,242/- T AKEN BY THE TPO IS IN RESPECT OF E&I DIVISION AND EPC DIVISION ( LOSS OF RS.11,18,16,580/- FOR EPC DIVISION AND E&I DIVISION OF RS. 1,70,71,662/- IN RESPECT OF BIDDING . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 13 TRANSACTION). THEREFORE, LD. AR SUBMITTED THAT SEG MENTAL RESULTS SUBMITTED BY THE ASSESSEE ARE REQUIRED TO BE ACCEPTED AND AS THE MARGIN OF THE ASSESSEE ON SEGMENTAL IS 10.40% AND MARGIN COMPUTED BY LD. TPO IS 13.18%, THE DIFFERENCE WILL BE WITHIN THE SAFE HARBOUR OF +/-5% AND NO ADDITION WILL BE CALLED FOR. HE SUBMITTED THAT THE RELIEF IS ALLOWA BLE TO ASSESSEE ONLY ON THIS GROUND AND THIS SUBMISSION OF THE ASSESSEE IS WITHO UT PREJUDICE TO THE OTHER GROUNDS WHICH ARE TAKEN IN GROUNDS OF APPEAL AND AD DITIONAL GROUNDS, ON WHICH ALSO THE IMPUGNED ADDITION IS ASSAILABLE. 5.3 IN VIEW OF THE AFOREMENTIONED SUBMISSIONS OF LD . AR IT WAS CONSIDERED APPROPRIATE TO HEAR LD. DR ON THIS ISSUE. 6. LD. DR SUBMITTED THAT THOUGH THE ISSUE THAT WHET HER THE PLI OF THE ASSESSEE HAS TO BE TAKEN ON THE BASIS OF SEGMENTAL RESULT OR AT ENTITY LEVEL, THE ISSUE IS COVERED BY THE AFOREMENTIONED ORDER BUT T HE SEGMENTAL RESULTS SHOWN BY THE ASSESSEE ARE NOT ACCEPTABLE AS ASSESSEE DID NOT FURNISH THE REQUIRED DETAILS ASKED FOR BY LD. TPO. LD. DR SUBMITTED TH AT SEGMENTAL RESULTS SHOWN BY THE ASSESSEE SHOULD NOT BE ACCEPTED FOR WANT OF DETAILS TO BE SUBMITTED BY THE ASSESSEE BEFORE LD. TPO. THUS HE SUBMITTED THA T THIS GROUND OF THE ASSESSEE SHOULD NOT BE ACCEPTED. IT WAS FURTHER SU BMITTED BY LD. DR THAT THE ALLOCATION SUBMITTED BY THE ASSESSEE IN ANNEXURE-1 ALONG WITH SUBMISSIONS MADE BEFORE LD. TPO VIDE LETTER DATED 19/9/2011, CO PY OF WHICH IS PLACED AT PAGE 161 OF THE PAPER BOOK, THE ASSESSEES ACTION ON ALLOCATING A FURTHER AMOUNT OF RS.2,06,65,942/- ON ACCOUNT OF OTHER EXPE NSES DOES NOT PERTAIN TO MAN HOURS AND ONLY A SUM OF RS.9,11,50,637/- CAN BE SAID TO BE ON ACCOUNT OF MAN HOURS AS THE SAME PERTAINS ONLY TO SALARY, BO NUS AND CONTRIBUTION TOWARDS PF. THUS IT WAS SUBMITTED BY LD. DR THAT T HE ADJUSTMENT MADE BY LD. TPO AND UPHELD BY LD. DRP SHOULD BE SUSTAINED. . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 14 7. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR TH AT EVEN IF THE CONTENTION OF LD. DR IS TO BE ACCEPTED THAT AMOUNT OF RS.2,06,65,942/- CANNOT BE ATTRIBUTED TO MAN HOURS AND ALLOCATION THEREOF TO THE EPC DIVISION IS NOT APPROPRIATE, EVEN THEN THE MARGIN OF THE ASSESSEE W ILL BE 9.28% IN PLACE OF 10.40%. HE SUBMITTED THAT EVEN MARGIN OF THE ASSES SEE AT 9.28% OF SEGMENTAL ACCOUNTS WILL BE WITHIN SAFE HARBOUR OF +/-5% AS T HE MARGIN APPLIED BY THE LD. TPO AT IS 13.18%. THUS IT WAS SUBMITTED BY LD. AR THAT ADDITION MADE IS LIABLE TO BE DELETED. 8. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. S O FAR AS IT RELATES TO THE MAIN ISSUE THAT WHETHER FOR BENCH MARKING THE INTE RNATIONAL TRANSACTIONS, SEGMENTAL RESULTS ARE RELEVANT OR RESULT AT ENTIT Y LEVEL ARE RELEVANT, THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISION OF TRIBUN AL. HOWEVER, QUESTION HAS BEEN RAISED REGARDING AUDITED SEGMENTAL ACCOUNTS SU BMITTED BY THE ASSESSEE. WE DO NOT FIND ANY SPECIFIC DEFECT IN THE SUBMISSIO NS MADE BY THE ASSESSEE BEFORE LD. TPO AND LD. DRP THAT ITS ENTIRE WORK DE PENDS ON THE MAN HOURS AND IT IS MAINTAINING A SYSTEM KNOWN AS TMA WHICH GENERATES MONTHLY REPORTS FOR THE PURPOSE OF TRACKING MAN HOURS. TH E ASSESSEE HAS EVEN GIVEN THE DETAILS REGARDING THE MAN HOURS UTILIZED BY IT FOR THE PURPOSE OF EACH PROJECT AND ON THE BASIS OF SUCH SYSTEM THE ASSESSE E HAS PREPARED THE SEGMENTAL ACCOUNTS. OUT OF TOTAL LOSS OF EPC DIV ISION ON ACCOUNT OF AE BIDDING ACTIVITY OF A SUM OF RS.11,18,16,580/-, OBJ ECTION CAN BE RAISED ONLY IN RESPECT OF ALLOCATION OF OTHER EXPENSES WHICH IS A TOTAL SUM OF RS.2,06,65,942/- AND WHICH IS IN THE NATURE OF JOB WORK; CONSULTI NG FEE AND SERVICE CHARGE; STAFF WELFARE; RENT; RATE AND TAXES; REPAIRS; INSUR ANCE POSTAL AND TELEGRAPH; TRAVELING AND CONVEYANCE; ELECTRICITY WATER AND GAS ; HIRE CHARGES FOR MACHINERY AND EQUIPMENT ETC. HOWEVER, ALL THESE EXPENDITURE IN THEIR ENTIRETY CANNOT BE SAID TO BE NON-ALLOCABLE ON THE BASIS OF MAN HOUR S RELATING TO NON BIDDING ACTIVITY OF EPC DIVISION. EVEN, IF WE ACCEPT THE CONTENTION OF LD. DR THAT THIS AMOUNT OF RS.2,06,65,942/- SHOULD NOT BE CONSIDERED AS LOSS OF THE ASSESSEE . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 15 ON THE ACTIVITY OF NON-AE BIDDING OF EPC DIVISION T HEN ALSO THE MARGIN OF THE ASSESSEE ON SEGMENTAL BASIS FOR ITS AE WILL BE 9.28 % FOR WHICH LD. AR HAS SUBMITTED A CALCULATION AS UNDER: WITHOUT PREJUDICE STATEMENT SHOWING REVISED PROFIT ABILITY OF AE SEGMENT AMOUNT (INR) I. PROFIT AS PER STATEMENT AT PG. 161 OF THE PAPER BOOK LESS : NON-ALLOCABLE COST ALLOCATED TO NON-AE BIDDIN G 209,902,497 20,665,942 REVISED PROFIT OF AE SEGMENT A 189,236,555 II TOTAL OPERATING COST OF AE SEGMENT AS PER STATE MENT AT PG. 161 OF PAPERBOOK ADD: NON-ALLOCABLE COST ALLOCATED TO NON-AE BIDDING 2,018,403,555 20,665,942 REVISED TOTAL COST OF AE SEGMENT B 2,039,069,497 OPERATING MARGIN OF AE SEGMENT (OP/OC) (A/B) 9.28% ALP MARGIN ON COST AS PER TPO SET OF COMPARABLES ARMS LENGTH PROFIT OF AE SEGMENT @ 13.18% C D+B*C 13.18 268,749.360 ARMS LENGTH VALUE OF SALES B+D 2,307,818,857 ACTUAL VALUE OF AE SALES E 2,227,800,765 95% OF E 105% OF E 2,116,410,727 2,339,190,803 T.P. ADJUSTMENT NIL FROM THE ABOVE CALCULATION IT CAN BE SEEN THAT THE DIFFERENCE BETWEEN ALP DETERMINED BY THE LD. TPO IN RESPECT OF AE TRANSACT IONS AND ALP CHARGED BY THE ASSESSEE IS LESS THAN 5%. THEREFORE, BENEFIT OF PROVISO WILL BE APPLICABLE TO THE ASSESSEE AND AFTER PROVIDING SUCH BENEFIT, NO ADDITION IS LEFT TO BE MADE. ACCORDINGLY, ADDITION OF RS. 24,09,18,616/- IS DELE TED. . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 16 8.1 AS WE HAVE DELETED THE ADJUSTMENT FOR THE REASO NS DISCUSSED ABOVE, THE OTHER GROUNDS TAKEN BY THE ASSESSEE IN REGARD TO T HIS ADJUSTMENT HAVE BECOME ACADEMIC AND IT WAS SUBMITTED BY LD. AR THA T THEY SHOULD BE TREATED AS ACADEMIC. IN THE RESULT, GROUND NO.1 OF THE ASSESSEES APPEAL IS ALLOWED AND GROUND NO.2 TO 6 ARE DISMISSED AS HAVING BECOME INFRUCTUOUS. 9. APROPOS GROUND NO.7; IT HAS ALREADY BEEN HELD THAT ASSESSEE IS ENTITLED TO GET BENEFIT OF PROVISO AND ON GRANT OF SUCH BEN EFIT NO ADDITION IS LIABLE TO BE MADE, THEREFORE, GROUND NO.7 IS ALLOWED. 10. APROPOS GROUND NO.8; DURING THE COURSE OF PROCE EDINGS BEFORE LD. TPO IT CAME TO THE NOTICE THAT ASSESSEE HAD ISSUED COUNTER GUARANTEE AMOUNTING TO RS.2,92,53,940/- WITH REGARD TO ITS AE AND HAD RECE IVED GUARANTEE COMMISSION @ 1.2% PER ANNUM AMOUNTING TO RS.3,49,711/- AND SUC H TRANSACTION WAS NOT REPORTED IN TP STUDY. THE TPO REQUIRED THE ASSESS EE TO EXPLAIN THE SAME AND VIDE LETTER DATED 24/08/2011 IT WAS SUBMITTED AS UN DER: THE ASSESSEE SUBMITS THAT FOR ALL ITS BORROWINGS GU ARANTEE IS PROVIDED BY TECHNIMONT SPA, ITALY AND THE ASSESSEE HAS NOT PAID ANY CONSIDERATION FOR THIS GUARANTEE. FURTHER, THE ASSESSEE SUBMITTED THAT STA TE BANK OF INDIA IS A LEAD BANKER IN ITS MULTIPLE BANKING CONSORTIUM AND THEY HAVE ISSUED SANCTION LETTER TO TICB WHICH DETAILS THE RATE OF 1.2% AS BG COMMISSIO N. BASED ON THE SAME RATE, TICB HAS ALSO RECOVERED GUARANTEE COMMISSION FROM I TS AE AT THE RATE OF 1.2% PER ANNUM. IN LIGHT OF THE ABOVE TICB HUMBLY SUBMITTED THAT CONSIDERING THE FACTS OF THE CASE THE RATE OF 1.2% PA CHARGED BY TICB ON THE COUNTER GUARANTEE SEEMS APPROPRIATE AND MIRRORS THE ARMS LENGTH RATE. 10.1 LD. TPO DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESSEE AND GATHERED INFORMATION FROM STATE BANK OF INDIA, WHEREIN BANK STATED THAT THE RATE CHARGED IS 2.75% PER ANNUM FOR AMOUNT OF GUARANTEE BETWEEN RS.1.00 CRORE AND RS.5.00 CRORE. RELYING UPON THAT AND ADDING A MARK UP 0.25% ON THE GROUND THAT ASSESSEE DID NOT TAKE ANY SECURITY FROM ITS AE AND COMMISSION MUST ALSO TAKE INTO ACCOUNT THE EXCHANGE RATE RISK, THE COUNTRY SPECIFIC RISK AND THE AE RISK, THE LD. TPO APPLIED 3% GUARANTEE C OMMISSION WHICH WAS WORKED OUT AT RS.8,77,618/-. AFTER REDUCING THE CO MMISSION SHOWN BY THE . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 17 ASSESSEE AN ADDITION OF RS.5,27,907/- WAS MADE. TH E ADDITION HAS BEEN UPHELD BY LD. DRP. THE ASSESSEE IS AGGRIEVED, HENC E, HAS FILED AFOREMENTIONED GROUND. 11. DURING THE COURSE OF HEARING LD. AR PLACED HEAV Y RELIANCE UPON THE BANK GUARANTEE GIVEN BY STATE BANK OF INDIA IN WHIC H ON A BANK GUARANTEE OF RS. 75.00 LACS COMMISSION WAS CHARGED @1.2%. COPY OF SUCH BANK GUARANTEE IS FILED AT PAGES 402 TO 403 OF THE PAPER BOOK. IT WAS SUBMITTED THAT ON THE BASIS OF ABOVE GUARANTEE THE RATE WAS CHARGED BY TH E ASSESSEE AND SAME SHOULD BE TAKEN AS COMPARABLE IN PLACE OF INFORMAT ION GATHERED BY LD. TPO FROM THE BANK. IT MAY BE MENTIONED THAT GROUND NO. 9 WAS NOT PRESSED BY LD. AR. 12. ON THE OTHER HAND, LD. DR SUBMITTED THAT LD. TP O HAS COLLECTED THE INFORMATION FROM SBI IN WHICH IT WAS CLEARLY STATED THAT THEY ARE CHARGING 2.75% AS GUARANTEE FEE IN RESPECT OF BANK GUARANTEE OF RS.1.00 CRORE TO RS.5.00 CRORES. HE SUBMITTED THAT THE EVIDENCES S UBMITTED BY THE ASSESSEE RELATES TO A SUM OF RS.75.00 LACS WHICH IS LESS THA N RS.1.00 CRORE, THEREFORE, THE SAID EVIDENCE CANNOT BE ACCEPTED. HE SUBMITTE D THAT ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SUGGEST THAT THE RATE CH ARGED BY IT WAS AT ARMS LENGTH. THEREFORE, HE SUBMITTED THAT DELETION AS SOUGHT BY THE ASSESSEE SHOULD NOT BE APPROVED. 13. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE ASSESSEE HAS NOT SUBMITTED ANY CONTRADICTORY EVIDENCE TO SUGGEST THA T THE RATE APPLIED BY LD. TPO AT 3% WAS NOT APPROPRIATE. THE EVIDENCE SUBMI TTED BY THE ASSESSEE RELATES TO BANK GUARANTEE WHICH IS LESS THAN RS.1.0 0 CRORE. THEREFORE, THE SAID EVIDENCE CANNOT BE TAKEN AS COMPARABLE INSTANC E. IN THIS VIEW OF THE SITUATION AS NO EVIDENCE HAS BEEN SUBMITTED BY THE ASSESSEE TO JUSTIFY THE RATE . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 18 CHARGED BY IT FROM ITS AE, WE DECLINE TO INTERFERE IN THE ADDITION UPHELD BY LD.DRP. THIS GROUND OF THE ASSESSEE IS DISMISSED. 14. APROPOS GROUND NO.9, IT HAS ALREADY BEEN STATE D THAT THIS GROUND WAS NOT PRESSED BY LD. AR, THEREFORE, THE SAME IS DISMI SSED. 15. APROPOS GROUND NO.10, IT WAS SUBMITTED BY LD. AR THAT APPROPRIATE RELIEF HAS ALREADY BEEN GIVEN BY LD.AO BY RECTIFYIN G THE DEMAND, THEREFORE, THIS GROUND HAS BECOME INFRUCTUOUS. IN VIEW OF THIS SU BMISSION OF LD. AR THIS GROUND IS ALSO DISMISSED. 16. SO FAR AS IT RELATES TO ADDITION GROUND, IT WA S SUBMITTED BY LD. AR THAT IN VIEW OF DELETION OF ADDITION ON ACCOUNT OF ACCEP TANCE OF SEGMENTAL ACCOUNT, ADDITIONAL GROUND FILED BY THE ASSESSEE HAS ALSO BE COME INFRUCTUIOUS. IN VIEW OF THIS SUBMISSION OF LD. AR THIS GROUND IS ALSO DI SMISSED HAS HAVING BECOME INFRUCTUOUS. 17. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 28/08/201 3 2 . 01' # 3 45 28 /08/2013 1 . 6 % SD/- SD/- ( !' / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) # / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 4 DATED 28/08/2013 . / ITA NO. 6394/MUM/2012 ' ' ' ' / ASSESSMENT YEAR 2008-09 19 2 2 2 2 . .. . ,/78 ,/78 ,/78 ,/78 98'/ 98'/ 98'/ 98'/ / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. 8;6 ,/ , , / DR, ITAT, MUMBAI 6. 6< = / GUARD FILE. 2 2 2 2 / BY ORDER, -8/ ,/ //TRUE COPY// > >> > / ? ? ? ? ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS