KH FACILITY SOLUTIONS INDIA PRIVATE LIMITED,HYDERABAD V. DCIT CIRCLE -5(1), HYDERABAD

ITA 492/HYD/2022

AI Insights

The case involves M/s. KH Facility Solutions India Private Limited, which appealed against the final assessment order passed by the Deputy Commissioner of Income Tax, Circle 5(1), Hyderabad. The assessment order included various additions and transfer pricing adjustments related to international transactions and technical services received from associated enterprises. The Tribunal examined the grounds of appeal, which included issues of legal and factual errors in the assessment, such as the erroneous disallowance of expenses and incorrect transfer pricing adjustments. The Tribunal's decision focused on correcting these errors and ensuring a fair hearing for the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 28632 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H. SRINIVASULU
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Revised return; Transfer pricing; International transaction; Principle of natural justice; Notional interest
• Section: 143(3); 13

Judgement Text

" आआआआ आआआआआआ आआआआआआ, आआआआआआआआ आआआ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA No.492/Hyd/2022 (निर्धारण वर्ा/Assessment Year:2018-19) M/s. KH Facility Solutions India Private Limited, Hyderabad. PAN:AAECM2448K Vs. Dy. Commissioner of Income Tax, Circle 5(1), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri H.Srinivasulu, Advocate रधजस् व द्वधरध/Revenue by:: Ms. M. Narmada, CIT-DR सुिवधई की तधरीख/Date of hearing: 12/12/2024 घोर्णध की तधरीख/Pronouncement: 21/01/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by M/s. KH Facility Solutions India Private Limited (“the assessee”), feeling aggrieved by the final assessment order passed by the Learned Assessing Officer (“Ld. AO”) u/s 143(3) rws 144C(13) rws 144B of the Income Tax Act, 1961 (“the Act”) on 29.07.2022 for the A.Y. 2018-19. 2. The assessee has raised the following grounds : Repr. 1. The order of the Ld. Assessing Officer (\"Ld. AO\") pursuant to the directions of the Dispute Resolution Panel (\"the Hon'ble DRP\"), is bad in law and liable to be set aside. ITA No.492/Hyd/2022 2 2. The Ld.AO/Hon'ble DRP erred in law and on facts in concluding that foreign Associated Entities cannot be selected as tested parties. 3. The Ld. AO/Hon'ble DRP erred in law and on facts by erroneously disallowing an amount of INR 4,83,39,374 which is an adjustment to provision for expense on account of technical services received from MW Group Germany in AY 2018-19, without considering the fact that such amount was already adjusted by the Ld.TPO and complete relief was provided by Hon'ble DRP in AY 2017-18. 4. The Ld.AO/Hon'ble DRP erred in law and on facts by erroneously disallowing an amount of INR 4,83,39,375 which is an adjustment to provision for expense in relation to the technical services received from MW Group Germany, and not a charge to the profit and loss account for AY 2018-19. 5. The Ld. AO/Hon'ble DRP erred in law and on facts in making a transfer pricing adjustment of INR 8,05,146 by treating the ALP as Nil, in relation to the international transaction involving receipt of technical services for project bidding support by the Assessee from its Associated Entity. 6. The Ld. AO/Hon'ble DRP erred in law and on facts in making a transfer pricing adjustment of INR 8,11,82,641/- by treating the ALP as Nil, in relation to the international transaction involving receipt of Global Business Unit services by the Assessee from its Associated Entity. 7. The Ld. AO/Hon'ble DRP erred in law and on facts in making a transfer pricing adjustment of INR 4,77,20,809/- by treating the ALP as Nil, in relation to the international transaction involving receipt of regional support services by the Assessee from its Associated Entity. 8. The Ld. AO/Hon'ble DRP erred in law and on facts by treating the outstanding receivables from its Associated Enterprises as separate international transactions. 9. The Ld. AO/Hon'ble DRP erred in not considering the fact that the Assessee does not charge interest from its non-AE customers for delay in realisation of invoices and therefore computation of notional interest on outstanding receivables from Associated Entities is not warranted. 10. Without prejudice to the grounds of appeal no. 8 and 9, the Ld. AO/ Hon'ble DRP erred in adopting SBI's term deposit interest rates for computation of notional interest on outstanding receivables denominated in foreign currencies. ITA No.492/Hyd/2022 3 11. The Ld. AO has erred in law and on facts in making an addition of unbilled revenue of INR 4,35,87,337/- recorded as an asset in financial statements, without discerning the fact that it already forms part of the revenue offered to tax during the subject AY and adding it again to the income would lead to double taxation. 12. The Ld. Assessing Officer has erred in law in not abiding by the direction of the Hon'ble DRP, necessitating verification of the information and contention of the Appellant. 13. The Ld. AO erred in law in violating the principles of natural justice by denying to give an opportunity of being heard before passing the final assessment order. The Appellant craves leave, to add, amend, modify, rescind, supplement, or alter any or all of the Grounds stated herein above, either before or at the time of hearing of this appeal.” 3. The brief facts of the case are that, the assessee is a company, engaged in the business of consulting, designing, supplying, installation, operation, testing, commissioning and validation for technological facilities and industrial production facilities in semi- conductor, pharmaceutical and other industries and also carries out engineering facility management services for all industries. The company filed its original Return of Income (“ROI”) for the A.Y. 2018-19 on 30.11.2018 declaring loss of Rs.34,53,48,158/-. The assessee also filed revised return on 19.03.2019 declaring the same loss as declared in the original ROI. The case of the assessee was selected for scrutiny and in view of the international transactions, for determination of Arm’s Length Price (“ALP”), it was referred to Learned Transfer Pricing Officer (“Ld. TPO”). The Ld. TPO as per his order dated 31.07.2021 proposed upward Transfer Pricing (“TP”) adjustment of Rs.20,80,15,057/- on account of international transactions. Accordingly, the Ld. AO passed draft assessment order ITA No.492/Hyd/2022 4 on 28.09.2021. Aggrieved, the assessee preferred objections before the Learned Dispute Resolution Panel (“Ld. DRP”) and pursuant to the directions of Ld. DRP dated 27.06.2022, the Ld. AO finalized the assessment on 29.07.2022 determining the ALP on account of international transactions amounting to Rs.17,84,13,270/-. The Ld. AO also made addition on account of non-TP issue i.e. ;addition of Rs.2,700/- u/s.40(a)(ia) of the Act and addition of Rs.4,35,87,337/- on account of unbilled revenue. 4. Aggrieved with the final assessment order of Ld. AO, the assessee is in appeal before us. The Learned Authorised Representative (“Ld. AR”) submitted that, the assessee raised as many as 13 grounds in the appeal. He also submitted that, they are only pressing ground Nos.3 to 7 as well as ground no. 11 and not pressing other grounds. 5. With regard to ground nos.3 & 4, the Ld. AR submitted that, the assessee had received technical services from MW group, Germany during A.Y. 2017-18 and made a provision for Rs.4,83,39,374/- in their books of account and had claimed the same as expenditure in A.Y. 2017-18. In support of their such claim, the Ld. AR brought our attention to page nos.16 to 24 of the paper book-4 containing the Remand Report of Ld. TPO for A.Y. 2017-18, wherein, at para no.4.3, the Ld. TPO has discussed about the provision of Rs.4,83,39,374/- and given his findings that the assessee is eligible for deduction of Rs.4,83,39,374/- on account of provision so created in ITA No.492/Hyd/2022 5 A.Y. 2017-18. The Ld. AR further submitted that, on the basis of the Remand Report of Ld. TPO, the Ld. DRP allowed the same as deduction in A.Y. 2017-18. During the A.Y. 2018-19, the assessee has made only the book adjustment to clear the provision created in A.Y. 2017-18. However, no claim on account of Rs.4,83,39,374/- has been made in profit and loss account in A.Y. 2018-19. The Ld. AR also brought our attention to page no.14 of paper book-4 i.e. Remand Report of Ld. TPO for A.Y. 2018-19, wherein, the Ld. TPO has given the findings that the assessee has not claimed the amount of Rs.4,83,39,374/- in profit and loss account in A.Y. 2018-19. However, inadvertently, the Ld. DRP without considering the findings given by the Ld. TPO in the Remand Report, rejected the claim of the assessee. Therefore, the Ld. AR prayed before the bench, that, as Rs.4,83,39,374/- has not been claimed as expenditure in A.Y. 2018-19, the addition made by the Ld. AO on this account is liable to be deleted. 5.1 Per contra, the Learned Department Representative (“Ld. DR”) conceded the view of the Ld. AR and accepted that the addition made by the Ld. AO may be deleted. 5.2 We have heard the rival submissions and also gone through the record in the light of the submissions made by either side. On going through the Remand Report of Ld. TPO for A.Y. 2017-18 (placed at page nos.16 to 24 of paper book-4) and for A.Y. 2018-19 (placed at page nos.12 to 15 of paper book-4), we found that the ITA No.492/Hyd/2022 6 amount of Rs.4,83,39,374/- relates to provision created and expenditure claimed in A.Y. 2017-18. We also found that no claim towards the same expenditure has been made by the assessee in A.Y. 2018-19. Therefore, in our considered opinion, no disallowance for any expenditure can be made against an expenditure which has not been claimed during the year under consideration. There is no dispute about the fact that the assessee has not claimed Rs.4,83,39,374/- as expenditure during the year under consideration. Hence, we are of the opinion that, as Rs.4,83,39,374/- has not been claimed as expenditure during the A.Y. 2018-19, no disallowance can be made on this account during the A.Y. 2018-19. Accordingly, we direct the Ld. AO/Ld. TPO to delete the addition of Rs.4,83,39,374/- made on account of technical services . 5.3 In the result, ground nos.3 & 4 are allowed. 6. With regard to ground nos.5 & 6, the Ld. AR submitted that, the Ld. TPO had proposed an adjustment of Rs.8,05,146/- on account of international transactions involving receipt of technical services by the assessee from MV, Singapore as NIL. The assessee had raised the objection against the same adjustment before the Ld. DRP. However, the Ld. DRP did not adjudicate on the issue while passing its order. The Ld. AR brought our attention to page no.16 of the order of Ld. DRP, wherein, the Ld. DRP has mentioned at para no.2.6, the objection by the assessee, but failed to give any finding on the same. Therefore, the Ld. AR prayed before the bench, as the Ld. DRP failed ITA No.492/Hyd/2022 7 to adjudicate on the objection of the assessee, to set aside the issue to Ld. DRP for fresh adjudication. 6.1 Per contra, the Ld. DR had no objection on the request of the assessee to set aside the issue to the file of Ld. DRP. 6.2 We have heard the rival submissions and also gone through the record in the light of the submissions made by either side. We have gone through page no.16 of order of Ld. DRP and found that, although at para no.2.6, Ld. DRP has noted the objection of the assessee relating to determination of ALP with regard to international transactions involving receipt of technical services by the assessee from MW, Singapore as NIL by the Ld. TPO, but the Ld. DRP failed to give any finding on the same. Therefore, we deem it fit to set aside the issue to the file of Ld. DRP to verify the same and give its finding on the issue as per law. 6.3 In the result, the ground nos.5 & 6 of the assessee are allowed for statistical purposes. 7. Ground no.7 of the assessee is related to TP adjustment of Rs.4,77,20,809/- by treating the ALP as NIL in relation to the international transactions involving receipt of regional support services by the assessee from its Associate Enterprises (“AEs”). With regard to this, the Ld. AR filed before us additional evidence contained in paper book-3, page numbers ranging from 1 to 250, with a request to accept the additional evidence. It is also requested by the ITA No.492/Hyd/2022 8 Ld. AR that the evidences could not be produced before the Ld. AO, therefore, the issue may be set aside to Ld. AO for verification. 7.1 Per contra, the Ld. DR made an objection on the request of the assessee to set aside the issue to the file of Ld. AO/Ld. TPO and objected for acceptance of additional evidences at the appellate stage. 7.2 We have heard the rival submissions and also gone through the record in the light of the submissions made by either side. Under the similar circumstances, in assessee's own case, for A.Y. 2017-18, the co-ordinate bench of ITAT in ITA No.201/Hyd/2022 dated 09.09.2024, at para no. 11 of the order, had accepted the additional evidences of assessee and remanded the issue for verification. Respectfully following the findings of the co-ordinate bench of ITAT in assessee's own case (supra), we remand the issue to the file of Ld. AO/Ld. TPO with a direction to verify the evidences filed by the assessee and decide the issue as per law. 7.3 In the result, ground no.7 of the assessee is allowed for statistical purposes. 8. Ground no.11 of the assessee is related to non-TP issue on account of addition of Rs.4,35,87,337/- towards unbilled revenue. 8.1 In this regard, the Ld. AR submitted that, they had requested for two weeks time for their submission in support of their claim before the Ld. AO. However, the Ld. AO without waiting for their submission, made the addition. Therefore, the Ld. AR prayed before ITA No.492/Hyd/2022 9 the bench that, as the issue has been decided by the Ld. AO without providing proper opportunity, hence one more opportunity may be granted for providing evidences before the Ld. AO. 8.2 Per contra, the Ld. DR raised no objection with regards to the request of the Ld. AR to set aside and remand the issue to the file of Ld. AO for verification of evidences and decide the issue as per law. 8.3 We have heard the rival submissions and also gone through the record in the light of the submissions made by either side. We have gone through the para no.5.2 of the order of Ld. AO and found that the assessee had made a request for two weeks time, but, as the assessment was getting time barred, the Ld. AO finalized the assessment without accepting the request of the assessee and made the addition of Rs.4,35,87,337/- towards unbilled revenue. As the addition has been made by the Ld. AO without hearing the assessee on merits, we are of the considered view that, in the interest of justice, one more opportunity may be provided to the assessee so that the issue can be decided on merits. Accordingly, we remand the issue ;to the file of the Ld. AO with a direction to decide the issue afresh as per law after providing an opportunity of being heard to the assessee. 8.4 In the result, the ground no.11 of the assessee is allowed for statistical purposes. ITA No.492/Hyd/2022 10 9. To sum up, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 21st Jan., 2025. Sd/- Sd/- (LALIET KUMAR) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad. Dated: 21.01.2025. * Reddy gp Copy of the Order forwarded to : 1. M/s. KH Facility Solutions Pvt. Ltd., Awfis Space Solutions Pvt. Ltd., 6th Floor, MN Infra Projects LLP, Plot No.38, Sy. No.64, Madhapur, Hyderabad- 500 081 2. DCIT, Circle 5(1), Hyderabad. 3. Pr.CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file. BY ORDER, "