DCIT, INTERNATIONAL TAXATION, CIRCLE GURGAON , GURUGRAM V. LUMMUS TECHNOLOGY HEAT TRASFER BV- INDIA BRANCH OFFICE , GURGAON

ITA 8917/DEL/2019

AI Insights

The case involves appeals by the Revenue against the orders of the CIT(A) which had deleted certain additions and penalties imposed on Lummus Technology Heat Transfer BV, a company engaged in providing engineering design services and supply of equipment in various industries. The Revenue challenged the deletions on grounds related to the income assessed from services rendered by the head office, disallowance of expenditure as taxable under section 44D, and issues related to transfer pricing adjustments. The Tribunal referenced previous judgments in similar cases involving the same assessee for subsequent years, which had accepted the internal Transactional Net Margin Method (TNMM) applied by the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131921 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 20-11-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 14-11-2019
• Other Referred Cases: ITA No. 6227/Del/2012, ITA No. 1047/Del/2014
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 271(1)(c); 154; 143(3)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHIBENCH ‘I’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Sh. Yogesh Kumar US, Judicial Member ITA No. 8917/Del/2019 : Asstt. Year : 2007-08 ITA No. 8918/Del/2019 : Asstt. Year : 2007-08 ITA No. 8919/Del/2019 : Asstt. Year : 2007-08 DCIT, International Taxation, Circle, Gurgaon Haryana Vs Lummus Technology Heat Transfer BV-India Branch Office, 2 nd Floor, Infinity Tower B, DLF Cyber City, Ph.-II, Sector-25A, Gurgaon-122002 (APPELLANT) (RESPONDENT) PAN No. AABCA9045K Assessee by : Sh. Vishal Kalra, Adv. & Ms. Snigdha Gautam, Adv. Revenue by : Sh. Bhagwati Charan, Sr. DR Date of Hearing: 21.11.2022 Date of Pronouncement: 24.01.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeals have been filed by the Revenue against the orders of ld. CIT(A)-44, New Delhi dated 29.08.2019. 2. In ITA No. 8918/Del/2019, following grounds have been raised by the Revenue: “1. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the addition on account of sales/services rendered by head office amounting to Rs.10,15,62,820/- made u/s 154/143(3)/144C (in original addition of Rs.1,01,56,280/-) by holding that the fact of ITA No. 8917, 8918 & 8919/Del/2019 Lummus Technology Heaat Transfer BV 2 subsequent years 2008-09 and 2009-10 were similar to this assessment year. 2. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the addition on account of disallowance the expenditure of Rs. 4,31,695/- as taxable U/s 44D on gross basis by holding that the fact of subsequent years 2008-09 and 2009-10 were similar to this assessment year. 3. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in rejecting the Transfer Pricing adjustment by accepting the assessee’s claim that its transactions with Associated Enterprises were at arm’s length price since its margin with AEs was better than that with non-AEs ignoring the TPO’s observations that quantum of non-AE transactions was only 0.56% of total sales and hence arbitrarily cost allocation in both these segments was not appropriate. 4. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in rejecting the Transfer Pricing adjustment by ignoring the fact that the Assessee was not maintaining separate audited financials and were hence liable to be rejected and also that the segmental information as disclosed in the Assessee’s TP Report had been created to artificially allocate the costs.” 3. In ITA No. 8919/Del/2019, following grounds have been raised by the Revenue: “1. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty U/s 271(1)(c) of the Income Tax Act, 1961 on the addition on account of sales/services rendered by head office amounting to Rs. 1,01,56,280/- by holding that the fact of subsequent years 2008-09 and 2009- 10 were similar to this assessment year. 2. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty U/s 271(1)(c) of the Income Tax Act, 1961 on ITA No. 8917, 8918 & 8919/Del/2019 Lummus Technology Heaat Transfer BV 3 the addition on account of disallowance the expenditure of Rs. 4,31,695/- as taxable U/s 44D on gross basis by holding that the fact of subsequent years 2008-09 and 2009-10 were similar to this assessment year. 3. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty U/s 271(1)(c) of the Income Tax Act, 1961 on rejecting the Transfer Pricing adjustment by accepting the assessee’s claim that its transactions with Associated Enterprises were at arm’s length price since its margin with AEs was better than that with non-AEs ignoring the TPO’s observations that quantum of non- AE transactions was only 0.56% of total sales and hence arbitrarily cost allocation in both these segments was not appropriate. 4. Whether, on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty U/s 271(1)(c) of the Income Tax Act, 1961 on rejecting the Transfer Pricing adjustment by ignoring the fact that the Assessee was not maintaining separate audited financials and were hence liable to be rejected and also that the segmental information as disclosed in the Assessee’s TP Report had been created to artificially allocate the costs.” ITA No. 8917/Del/2019: 4. Lummus Technology Heat Transfer BV is a company incorporated under the laws of Netherlands. After receiving an approval in June, 1997 from the Reserve Bank of India, Lummus BV established a Liaison Office in India which was later converted into a Branch Officer after obtaining necessary approval from the RBI in June 1999. Limmus BO is primarily engaged in provision of engineering design services and supply of equipment in power oil and gas, fertilizer and petrochemical industries to its head office other associated enterprises and third party customers in India. ITA No. 8917, 8918 & 8919/Del/2019 Lummus Technology Heaat Transfer BV 4 5. For assessment year 2007-08, the assessee had filed return of income on 5.11.2011 declaring Nil taxable income. The Assessing Officer passed a draft assessment order dated December 23, 2010 under section 143(3) read with section 144C of the Act, assessed the income of the assessee at Rs.2,86,84,495/-. In relation to the same, the assessee filed a letter date January 27, 2011 with the AO requesting for issuance of final assessment order and completion of assessment. 6. The AO passed the final assessment order along with the notice of demand, both received by the Appellant on October 9. 2015. The additions made by the AO in the final assessment order have been tabulated below: Particulars Amount (Rs.) Profits and, gains from business or profession 47,89,294 Additions Adjustment to the arm's length price on provision as per the transfer pricing order under section 92CA(3) of the Act. 1,33,07,224 Disallowance of proportionate expenses in relation to income taxable under section 44D 4,31,695 Estimate basis income tor sales made/services rendered in India directly by Lummus HO treated as FTS 1,01,56,282 Total assessed income 2,86,84,495 ITA No. 8917, 8918 & 8919/Del/2019 Lummus Technology Heaat Transfer BV 5 7 . In the final assessment order, there was a mistake apparent from record wherein the amount of income of Lummus HO from direct sales / services rendered in India, which was determined by the AO on an estimate basis, was Rs.10,15,62,820/- but Rs.1,01,56,282/- was added to the total income of the assessee. Thus, an order under section 154 of the Act dated March 28, 2013 was passed by the AO rectifying the mistake and revising the income of the assessee to Rs.12,00,01,033/- and the tax payable to Rs.2,69,99,329/-. The assessee has already filed a separate appeal with CIT(A)-43 against the order under section 154. Transfer Pricing Adjustment 8. The Transfer Pricing Officer (TPO) determined the arm's length price (“ALP") of the international, transaction of the assessee at Rs.11,16,84,294/- instead of Rs.9,83,77,700/-, thereby making an upward adjustment of Rs.1,33,07,224/- to the income. The AO upheld the adjustments carried out by the TPO in the final assessment order. 9. During the Financial Year 2006-07, the assessee was primarily engaged in provision of engineering design services and construction projects supply of equipment m the power, oil and gas, fertilizer and petro chemical sectors. The arm’s length nature of the international transactions was demonstrated in the documentation as maintained and furnished by the assessee. 10. With respect to the above international transactions, the assessee adopted internal Transactional Net Margin Method ITA No. 8917, 8918 & 8919/Del/2019 Lummus Technology Heaat Transfer BV 6 (“TNMM") and Net Operating Profit on Margin (“NPM") as the Profit Level Indicator (PLI) to demonstrate the arm's length nature of the international transaction. 11. The TPO, in the transfer pricing order dated September 29, 2010 passed under section 92CA(3) of the Act, rejected the economic analysis of the Appellant and computed the ALP of the international transactions, carrying: out new search and proposing TNMM at the entity level for benchmarking the international transaction. 12. Further, the TPO selected companies having functionally different profiles as against that of the Appellant, thereby computing an arm’s length NCP at 19.04 percent as against the arm's length NCP of 52.44 percent determined by the assessee. Based on the aforesaid computation, the TPO has made an upward adjustment of Rs.1,33,07,224/- to the income of the assessee on a cost base of Rs.9,38,21,341/-. 13. With regard to corporate tax adjustment, the contention of the assessee was that Section 44D of the Income Tax Act, 1961 does not apply to the case of the assessee. 14. Going straight to the issues involved before us, having gone through the record and hearing the arguments of both the parties, we find that the issue of addition on account of sales/services rendered by Head Office stands adjudicated by the order of the Tribunal in the assessee’s own case wherein internal TNMM applied by the assessee has been accepted the A.Y. 2008-09 and A.Y. 2009-10 in ITA No. 6227/Del/2012 dated 21.02.2014 and in ITA No. 1047/Del/2014 dated 23.03.2018. ITA No. 8917, 8918 & 8919/Del/2019 Lummus Technology Heaat Transfer BV 7 Hence, in the absence of any facts and legal proposition, as the order of the ld. CIT(A) is based on the judgments of the Tribunal, we decline to interfere with the order of the ld. CIT(A). 15. With regard to ad-hoc disallowance expenditure u/s 44D, we find that the same issue has been adjudicated by the Tribunal in the case of the assessee for the A.Y. 2008-09 and A.Y. 2009-10 in ITA No. 6227/Del/2012 dated 21.02.2014 and in ITA No. 1047/Del/2014 dated 23.03.2018 wherein the ad-hoc addition was deleted. Hence, in the absence of any facts and legal proposition, as the order of the ld. CIT(A) is based on the judgments of the Tribunal, we decline to interfere with the order of the ld. CIT(A). Since, the orders are in public domain, we refrain to reproduce the relevant part in this order. ITA No. 8918/Del/2019: 16. The appeal against the rectification u/s 154 involving the same issue with the same grounds and hence no separate adjudication is required. ITA No. 8919/Del/2019: 17. Since, the quantum additions stands deleted by the above order, the appeal against the order u/s 271(1)(c) becomes in fructuous and hence liable to be dismissed. ITA No. 8917, 8918 & 8919/Del/2019 Lummus Technology Heaat Transfer BV 8 18. In the result, the appeals of the Revenue are dismissed. Order Pronounced in the Open Court on 24/01/2023. Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 24/01/2023 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR