DCIT 9(1), MUMBAI V. BOSKALIS DREDGING INDIA P. LTD, MUMBAI

ITA 6592/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70988 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 20-08-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 09-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OZHA
• Assessee Lawyers: AJEET KUMAR JAIN
• Keywords: Transfer pricing; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI . . , . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER . : 6592 / ! / 2010, 2002-03 ITA NO. 6592/MUM/2010 (ASSESSMENT YEAR: 2002-03) ------------------------------------------ DCIT RANGE 9(1), R. NO. 223, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 VS M/S BOSKALIS DREDGING INDIA PVT. LTD., 702, 7 TH FLOOR, TRADE CENTRE, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI -400 051 PAN: AAACN 2566 R (APPELLANT) !' (RESPONDENT) APPELLANT BY : SHRI VIRENDRA OZHA RESPONDENT BY : SHRI AJEET KUMAR JAIN # $ %& /DATE OF HEARING : 20-08-2013 '( $ %& / DATE OF PRONOUNCEMENT : 28-08-2013 ' O R D E R . . : . . PER N. K. BILLAIYA, AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORD ER OF THE CIT(A)-15, MUMBAI DATED 09.07.2010 PERTAINING TO AY 2002-03. 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE REVEN UE IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 65,90,825/- IG NORING THE FINDING OF THE AO THAT THE EXPENDITURE WAS INCURRED IN RELATION TO THE TRANSACTION WITH THE ASSOCIATED CONCERN, WHICH WAS N OT CARRIED OUT AT ARMS LENGTH PRICE. M/S BOSKALIS D REDGING INDIA PVT. LTD. ITA 6592/MUM/2010 2 3. THIS ISSUE HAS BEEN DISCUSSED BY THE AO AT PARA 3.2 ON PAGE 5 OF HIS ORDER. THE AO OBSERVED THAT THE ASSESSEE HAD INC URRED EXPENSES OF RS. 65,90,825/- ON REPAIRS TO DREDGER GEMINI. IT WAS TH E CONTENTION OF THE ASSESSEE THAT THESE EXPENSES WERE A DDITIONAL WEAR AND TEAR AND WHICH ARE NOT COVERED UNDER THE VG BOUW VALUATION NORMS. THE TPO ACCEPTED THE ASSESSEES CONTENTION THA T THE SAID REPAIRS ARE NOT COVERED UNDER VG BOUW VALUATION NORMS. HOWEVER, AT THE SAME TIME, IT WAS HELD THAT THE REPAIRS NEED TO BE ON THE ACCOUNT OF THE CHARTERER, I.E. BOSKALIS INTERNATIONAL BV AND ACCORDIN GLY, TRANSFER PRICING ADJUSTMENTS WERE MADE ON LEASING OF DRED GER GEMINI, WHICH RESULTED INTO AN ADDITION OF RS. 65,90,825/-. 4. THE ASSESSEE CARRIED THIS MATTER BEFORE THE CIT(A). THE CIT(A) HAS CONSIDERED THIS ISSUE AT PARA 3 ON PAGE 3 OF HIS ORD ER. IT WAS STRONGLY CONTENDED BEFORE THE CIT(A) THAT VG BOUW IS A RECOGNIZED INDUSTRY ASSOCIATION REPRESENTED BY KEY PLAYERS IN THE E NTIRE BUILDING AND CONSTRUCTION INDUSTRY OF WHICH DREDGING CONSTITUTES A PART. IT WAS FURTHER EXPLAINED THAT, THE DUTCH CONSTRUCTION AND DREDG ING INDUSTRY RELIES ON VG BOUW TO COLLECT AND SHARE THE KNOW-HOW, EXP ERIENCE AND DATA RELATION TO THE COST STANDARDS FOR CONSTRUCTORS EQUIPMENT. NOT ONLY ITS MEMBERS, BUT ALSO SUPPLIERS, MANUFACTURERS, SHIPBUILD ERS AND CONSULTANTS CONTRIBUTE TO THE STANDARDS PRESCRIBED BY VG BOUW AND THE STANDARDS ARE THEREFORE WIDELY ACCEPTABLE AS AN IND USTRY BENCHMARK. VG. BOUW PRESCRIBES AND UPDATES THESE STAND ARDS FROM TIME TO TIME. THE STANDARDS PUBLISHED BY VG BOUW ARE MEA NT TO FACILITATE COMPUTING OF LEASE RENTALS FOR DREDGERS AND EQU IPMENT THROUGH DETAILED COST ACCOUNTING OF SUCH EQUIPMENT. IT WA S FURTHER EXPLAINED THAT AS PER VG BOUW VALUATION NORMS, CERTAIN CO STS IN RESPECT OF ADDITIONAL WEAR TO DREDGING COMPONENTS ARE EX CLUDED FOR THE PURPOSE OF CALCULATION OF THE MAINTENANCE + REPAIR COMPON ENT IN THE LEASE RENTALS. SUCH COSTS ARE BORNE BY THE OWNER AND N OT THE CHARTERER. M/S BOSKALIS D REDGING INDIA PVT. LTD. ITA 6592/MUM/2010 3 5. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES AND SUBM ISSIONS, THE CIT(A) OBSERVED THAT THE VALUATION NORMS AS PER VG BOUW ARE IN THE NATURE OF EXTERNAL CUP FOR DREDGING INDUSTRY FOR CALC ULATION OF THE LEASE RENTALS TO BE CHARGED BY THE OWNER. THE CIT(A) WAS CONVINCED THAT THE EXPENSES INCURRED BY THE ASSESSEE ON REPAIRS WERE IN NATURE OF ADDITIONAL WEAR TO THE DREDGING COMPONENTS AND TRAVELLIN G EXPENSES FOR TECHNOLOGY SPECIALIST WORKING ABROAD WHICH ARE TO BE B ORNE BY THE OWNER AND NOT TO BE CHARGED TO THE CHARTERER AND AC CORDINGLY WENT ON TO DELETE THE ADDITIONS OF RS. 65,90,825/-. 6. THE REVENUE IS BEFORE US AGAINST THIS FINDING OF THE CIT (A). THE LD. DR SUBMITTED THAT THE ASSESSEE HAS GROSSLY FAILED T O SUBSTANTIATE ITS CLAIM THAT THESE EXPENSES INCURRED ON THE REPAIRS ON DREDGER GEMINI ARE IN THE NATURE OF ADDITIONAL WEAR. IT IS THE SAY O F THE DR THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE INVOICES SUBMIT TED BEFORE THE AUTHORITIES SPECIFICALLY MENTIONS THAT THE EXPENSES ARE AD DITIONAL AND OVER AND ABOVE THE EXPENSES CONSIDERED BY VG BOUW VALUATION NORMS, WHICH COULD LEAD TO THE CONCLUSION THAT, SUCH EXPENSES HA VE TO BE BORNE BY THE OWNER AND NOT THE CHARTERER. PER CONTRA , THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BE FORE THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE O RDERS OF THE LOWER AUTHORITIES AND RELEVANT MATERIAL EVIDENCES BROU GHT ON RECORD IN THE FORM OF A PAPER BOOK. THE ONLY POINT OF DISP UTE IS WHETHER THE EXPENSES DEBITED BY THE ASSESSEE SHOULD H AVE BEEN CHARGED TO THE CHARTERER OR HAS BEEN RIGHTLY BORNE BY THE ASSESSEE. IT IS THE CONTENTION OF THE REVENUE THAT THESE EXPENSES ARE OF NORMAL IN CHARACTER AND, THEREFORE, AS PER AGREEMENT AND ALSO AS PER THE VALUATION NORMS OF VG BOUW, THESE EXPENSES SHOULD HAVE B EEN CHARGED TO THE CHARTERER. IT IS THE CONTENTION OF THE A SSESSEE THAT THESE EXPENSES ARE OF EXCEPTIONAL IN NATURE AND, THEREFORE, AS P ER VG BOUW VALUATION NORMS THESE HAVE TO BE BORNE BY THE OWNER, WHICH IS RIGHTLY M/S BOSKALIS D REDGING INDIA PVT. LTD. ITA 6592/MUM/2010 4 BEEN DONE SO BY THE ASSESSEE. A PERUSAL OF THE INVOICES EXHIBITED AT PAGES 22 TO 39 OF THE PAPER BOOK SHOW THAT PURCHASE ORDER NO. 304 DATED 01.09.2001, AS EXHIBITED ON PAGE 22, SHOW THAT THE ORDER WAS PLACED FOR DISMENTALING OF HYDRAULIC SYSTEM ON BOARD. TRANSP ORT TO HOLLAND FOR REPLACEMENT OF VALVES, SUPPORTS, PIPING TANK AND THEREAFTER LABOUR, MACHINING OF PARTS AND AGAIN COMMISSIONING OF THE SYS TEM ON BOARD INCLUDING TRAVELLING COSTS. A PERUSAL OF THIS INVOICE SUG GEST THAT THE SYSTEM WAS DISMANTLED AND CARRIED TO HOLLAND AND AFTE R DOING THE REPAIR WORK, IT WAS REINSTALLED ON BOARD DREDGER GEMINI. TH ERE IS A CONTRADICTION BETWEEN THE INVOICE AND THE SUBMISSIONS. FUR THER, A PERUSAL OF EXHIBIT 26, SHOW THAT CERTAIN EXPENSES HAVE BE EN CHARGED ON 5 TH JULY. EXHIBIT 29 SHOW THAT CERTAIN WORKS WERE CARRIED ON IN THE MONTH OF MAY, 2001. 8. CONSIDERING THESE FACTS ON RECORD WITH THE INVOICE NO. 3 04, WHICH IS DATED 01.09.2001, IT IS NOT UNDERSTANDABLE AS TO W HEN THE WORK ORDER WAS PLACED ON 1 ST OF SEPTEMBER, 2001, HOW IS IT POSSIBLE THAT CERTAIN EXPENSES HAVE BEEN CHARGED IN THE MONTH OF MAY, 2001 AND JULY, 2001. THESE FACTS HAVE NOT AT ALL BEEN CONSIDER ED BY THE LOWER AUTHORITIES. IN OUR HUMBLE OPINION, THIS ISSUE NEEDS FUR THER VERIFICATION BY THE AO. THE ASSESSEE HAS TO ESTABLISH THAT THESE REPAIRS WERE CARRIED ON OVER AND ABOVE THE REPAIR EXPENSES T O BE BORNE BY THE CHARTERER. THE REVENUE HAS ALSO NOT BROUGHT ANY COGEN T MATERIAL ON RECORD TO DISAPPROVE THE CLAIM OF THE ASSESSEE. THEREFORE , IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE BAC K TO THE FILES OF THE AO, THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH IN THE LIGHT OF OUR OBSERVATIONS MADE IN RESPECT OF INVOICE NO. 304, HER EINABOVE, AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. THE ASSESSEE IS ALSO DIRECTED TO SUBSTANTIATE ITS CLAIM BY BRIN GING COGENT MATERIAL ON RECORD THAT THE EXPENSES WERE OF EXCEPTION AL IN NATURE AND HAVE TO BE BORNE BY THE OWNER AND NOT BY THE CHARTERER. M/S BOSKALIS D REDGING INDIA PVT. LTD. ITA 6592/MUM/2010 5 9. THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2013. SD/- SD/- ( . . ) ( . . ) # (I.P. BANSAL) (N. K. BILLAIYA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE: 28 TH AUGUST, 2013 !%/ COPY TO:- 1) / THE APPELLANT. 2) !' / THE RESPONDENT. 3) THE CIT(A)-15/ CONCERNED, MUMBAI 4) ,% -9/ CONCERNED, MUMBAI /CIT-9/CONCERNED, MUMBAI 5) -./ !% , , / THE D.R. K BENCH, MUMBAI. 6) /0 1 COPY TO GUARD FILE. 23# / BY ORDER / / TRUE COPY / / [ 4 / #5 6 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *895 . . # * CHAVAN, SR. PS