THERMAX BABCOCK & WILCOX ENERGY SOLUTIONS P.LTD,MUMBAI vs. DCIT CIR 2(3)(1), MUMBAI

Date of conclusion of Hearing : 23.05.2023 Date of Pronouncement : 18.08.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeal are filed by assessee, the appeal in ITA.No. 1735/Mum/2016 is against order of Dispute Resolution Panel -2, Mumbai (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd [hereinafter in short “Ld. Ld. DRP] dated 15.12.2015 for the A.Y.2011-12 and the appeal in ITA.No. 733/Mum/2022 is against order of Learned Commissioner of Income Tax (Appeals)-58, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 21.02.2022 for the A.Y.2012-13.

ITA.No. 1735/MUM/2016 (A.Y. 2011-12)

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd 4. Babcock and Wilcox India Holding lnc, USA (BWIH) is part of Babcock and Wilcox Group which is an American energy technology and service provider that is active and has operations in many International markets across the globe with its headquarters in Akron, Ohio, USA Historically, the company is best known for their steam boilers.

5. Both the Thermax Group and the Babcock & Wilcox Group are reputed conglomerates across the globe and are well-known in the field of generation of the Boilers. Thermax Limited is a reputed public company in India at National and Bombay Stock Exchanges, whole Babcock & Wilens Enterprises Inc is a listed entity at New York Stock Exchange.

 Industrial Steam Generators (Boilers) upto 500 TPH capacity which can fire various solid, liquid and gaseous fuels;  Renovation & Modernization (R&M) including condition assessment and Boiler life extension services of boilers of any make and capacity irrespective of duel burned.

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd  Heat recovery steam generators (HRSG) to recover heat from gas turbine exhaust. (Refer Pg.No. 63 of the PB.)

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd 18. In addition to incorporating the aforesaid adjustments proposed by the TPO, the Assessing Officer proposed an addition of ₹.8,23,254/- as disallowance u/s 14A of the Act and proceeded to pass the draft assessment order dated 18.03.2015 wherein the Assessing Officer had proposed to make additions of ₹.31,56,24,139/-.

Sr. Particulars Addition No. 1. TP adjustment in relation to technical know-how 7,60,79,250 2. TP adjustment in relation to reimbursement of salary 1,04,83,885 cost 3. Disallowance u/s 14A of the Act 8,23,254 Total 8,73,86,389

1. Transfer Pricing adjustment The learned DCIT pursuant to the directions of the Hon'ble DRP erred in law and on the facts and in circumstances of the case in making an adjustment of Rs.8,65,63,135 to the value of international transactions entered into by the Appellant with its Associated Enterprise in respect of receipt of technical know-how and reimbursement of expenses Transfer Pricing adjustment The learned DCIT/DRP/Transfer Pricing Officer have erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material and also failed to consider various material evidences adduced and submissions made.

2. Erroneous computation of arm's length price of the international transaction of receipt of technical know-how as NIL. The learned DCIT pursuant to the directions of the Hon'ble DRP erred in law and on the facts and in circumstances of the case in computation of the arm's length price of the international transaction of receipt of technical know-how as NIL

3. Non-application of any transfer pricing method while computing the arm's length price of the international transaction of receipt of technical know-how as NIL The learned DCIT pursuant to the directions of the Hon'ble DRP erred in law and on the facts and in circumstances of the case in not applying any of the prescribed methods for arriving at the conclusion that the arm's length price of the international transaction of receipt of technical know-how is NIL.

4. Erroneous computation of arm's length price of the international transaction of reimbursement of salary expenses to Associated Enterprise as NII. The learned DCIT pursuant to the directions of the Hon'ble DRP erred in law and on the facts and in circumstances of the case in computation of the arm's length price of the international transaction of reimbursement of salary expenses to Associated Enterprise as NIL (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd 5. Erroneous disallowance under section 14A of the Income-tax Act, 1961 The learned DCIT pursuant to the directions of the Hon'ble DRP erred in law and on the facts and in circumstances of the case in making disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 .

6. Initiation of penalty proceedings The learned DCIT erred on the facts and in law in initiating penalty proceedings section 271(1) (c) of the Act.

7. Levy of interest obligation on account of transfer pricing adjustment The learned DCIT has erred on the facts and in law while levying interest under section 234B of the Act, on account of the unanticipated transfer pricing adjustments.

8. Each one of the above grounds of appeal

is without prejudice to the other.

9. The Appellant reserves the right to amend, alter or add to the grounds of appeal.”

21. We proceed to adjudicate the issues raised by the assessee ground wise.

22. Ground No.1 is general in nature, accordingly, needs no separate adjudication.

23. With regard to Ground No. 2 and 3 which are interconnected and gist of the grounds are reproduced below: - (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd “Ground Nos.2 and 3 - Erroneous computation of arm's length price of the international transaction of receipt of technical know-how as NIL.

24. At the time of hearing, Ld. AR of the assessee brought to our notice relevant facts of the case and filed its written submissions, for the sake of clarity, the same are reproduced below: - “Submissions of the Appellant before the DRP: 3.12. Before the DRP, the Appellant submitted that the transfer pricing analysis conducted by the Appellant in its TPSR ought to be accepted, and, the transaction be treated at arm's length. Accordingly, the Appellant pleaded that the price as per offer letter dated 11 August 2009 ought to be accepted as the comparable uncontrolled price and for benchmarking the transaction. 3.13. It is pertinent to note that the offer letter proposed the license fees of USD 7.6 million which is far higher/greater than the final agreed upon lumpsum fees of USD 6.5 million. Accordingly, once offer letter is accepted as CUP, the transaction would be considered at arm's length and no further addition will be warranted. 3.14. In addition to the above the Appellant submitted a host of additional evidence to justify its claim and establish the need, benefit and the rendition of the technical know-how before the DRP. The DRP had called for a remand report from the TPO and the TPO vide letter dated 06 November 2015 has provided his comments on the additional evidence filed by the Appellant before the DRP and the same is placed at Pg No. 417 to 420 of the PB. The Appellant's response dated 19 November 2015 to the aforesaid remand report is placed at Pg No. 421 to 434 of the PB. 3.15. The exhaustive list of documents submitted by the Appellant before the DRP (including additional evidence), and the contentions thereto are tabulated as under for ease of reference: - (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd Sr. Particulars/ Appellant’s Submission PB No. Documents Reference submitted 1. License This agreement was relied upon by 118-146 - Agreement the appellant as the comparable between TL and uncontrolled price determined between two BWPGG dated independent and unrelated parties prior to 18 January 2008 becoming AEs for provision of technical know-how w.r.t sub-critical boilers.

2. Shareholders' This agreement determines the purpose 147-193 Agreement and business to be conducted by the JV, between TL and investment by the JV Partners, role and BWIH dated 8 responsibilities of both the JV Partners. March 2010 for incorporation of The purpose of the incorporation of the JV Appellant JV was essentially to manufacture sub-critical and super-critical boilers basis the technical know-how to be received from BWPGG.

3. License This agreement determines the nature and 194-256 Agreement mode of provision of technical know-how, between TBWES terms and conditions, license fees and and BWIH dated subsequent payment of royalties on sales. 18 August 2010 This is the relevant agreement under which the payment of technical know-how is done 4. Invitation by This invitation for bids provides various 332-340 Central guidelines/conditions stipulated by the Electricity Government of India for sourcing super- authority for critical boilers from indigenous sourcing of manufacturers. super- critical units from One of the eligibility criteria for indigenous participation is formation of a JV in India. manufactures Further, it is essential that the Indian JV dated 2 Feb partner holds 51% of the equity in the JV. 2010 Additionally, one of the pre-requisites for participation in the bulk tender is that the JV should have a valid technology transfer (A.Y: 2011-12) ITA NO. 733/MUM/2022 (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd Sr. Particulars/ Appellant’s Submission PB No. Documents Reference submitted agreement including license to manufacture and supply in India, with manufacturer. a qualified super-critical boiler Further, it provides that the license agreement should necessarily cover technological know-how in the form of complete design dossier, design softwares, drawings and documentation, quality system manuals and imparting relevant personnel training to the JV company.

These guidelines are helpful in understanding the inherent intention of incorporating the Appellant company and the relationship between Thermax and B&W group It also showcases the fact that the technological know-how for manufacturing super-critical boilers might not be available domestically in India and one will have to obtain the same from global players.

Naturally, to enter into this business, Thermax and B&W group were required to form a JV and enter into a technical license agreement. One can observe that while TBWES and BWPGG are the AES, the transaction in substance was negotiated between two unrelated and independent parties and the price so determined is essentially decided in a third-party scenario.

6. Purchase The Appellant supplied documents such as 354-415 Contracts, Purchase Contracts, Sample Purchase Sample Orders and List of Bids undertaken to Purchase Order substantiate the benefits accrued to it. and List of Bids 3.16. In support of the benchmarking analysis conducted by the Appellant, the Appellant submitted that it has rightly reported the transaction and the method adopted by it for benchmarking this transaction is akin to CUP. 3.17. Be that as it may, the Appellant also provided a detailed comparison between the Old License Agreement dated 18 January 2008 ie. the old agreement between TL. and BWPGG for subcritical boilers and the new License Agreement dated 18 August 2010 between TBWES and BWPGG 3.18. The contention of the Appellant was that the license agreement dated 18 January 2008 was entered into between two independent and unrelated parties and hence qualifies to be used as a comparable uncontrolled price to benchmark the disputed transaction 3.19. Basis the comparison provided by the Appellant between the aforesaid two agreements, the Appellant's submission was that the transaction of payment of technical knowhow is at arm's length and hence the proposed adjustment ought to be deleted 3.20. Accordingly, the Appellant provided contemporaneous documentation to justify the need, benefit, rendition and benchmarking of the technical know-how received from BWFGG. 3.21. Without prejudice to abovementioned contentions, the Appellant also submitted before the DRP that the disallowance if (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd any, ought to be restricted to the depreciation u/s 32 of the Act claimed by the Appellant i.e. Rs. 7,60,79,250. 3.22. The submissions of the Appellant are summarized at Pg Nos 3 to 5 of the DRP Directions. D. Action by the DRP: The observations of the DRP are summarized as under: 3.23. The DRP has perused the submissions and comparability analysis provided by the Appellant between the two agreements and has observed that the products under both the agreements are substantially different and hence they cannot be compared under the CUP method 3.24. It has held that the various services to be provided for the technical know-how are basically shareholder activities and since the Shareholder activity is not to be remunerated, the TPO has rightly determined the ALP as NIL. 3.25. The DRP has not given any specific findings on the offer letter dated 11 August 2009, but has observed that if the Appellant wishes to use the offer letter as CUP, it should have been placed on record of the authorities. 3:26. The DRP took a note of the documents relating to installation of manuals, material properties, database and users' guide, Standard Update, Standard Manuals, Reference Drawings, B&W SWUP Training, material, Installation DVDs, Training Manual etc. and endorsed the view of the TPO that these materials should be provided free of cost and the same gets covered in the royalty paid by TBWES to BWPGG. 3.27. The DRP additionally held that the Appellant has not followed one of the probed methods under the Act for benchmarking this transaction. 3.28. The DRP has held that the TP Adjustment ought to be restricted to the amount of depreciation claimed u/s 32 of the Act Le. 7,60,79,250. In conclusion the DRP has upheld the observations of the TPO and held that the disputed transaction ought to be NIL. and (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd has restricted the amount of adjustment 7,60,79,250 i.e. the amount claimed as depreciation u/s 32 of the Act. E. Submissions before the Hon'ble Tribunal: Aggrieved by the TP adjustment made by the TPO and upheld by the DRP, on account of payment of technical know-how, the Appellant is in appeal before the Hon'ble Tribunal and the submissions of the Appellant against this addition are encapsulated in the ensuing paragraphs: Rationale and need for technical know-how agreement dated 18 August 2010: 4.1 At the outset, the Appellant most respectfully submits that the Thermax and B&W group are two of the very reputed entities in the field of power generation and the TPO and the DRP have erroneously failed to comprehend the essence of the disputed transaction 4.2. It is humbly submitted that the negotiations for obtaining technical know-how for sub-critical and super-critical boilers had commenced much prior to incorporation of the Appellant. In fact, Thermax Limited had already entered into an agreement with BWPGG for obtaining technical know-how w. sub critical boilers back in 2009 4.3 It is imperative to note that the boilers are expensive and complex equipment and the manufacturing of the same would involve considerable planning, labour and capital outlay. In light of the same, the cost of obtaining technical know-how, designs etc. for these boilers is also an expensive investment for the manufacturer of the Boilers. 4.4. The manufacturing of super-critical boilers had only begun in the later part of the first decade of 21 Century The technological know-how for manufacturing these super critical boilers was not available domestically in India. Thus, in its endeavor of manufacturing these super critical boilers on the Indian soil, the Government of India, categorically required global players to form a JV in India 4.5 Further, as mentioned in earlier paragraphs, these guidelines also provide that the qualified manufacturer (ie. JV) should have an (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd agreement valid technology transfer agreement including license to manufacture and supply in India, with a qualified super-critical boiler manufacturer 4.6. It was in this backdrop that B&W group approached Thermax and presented them with the proposal for providing technical know-how vide offer letter dated 11 August 2009 (filed as additional evidence before the Hon'ble Tribunal on 26 April 2017) 4.7. The aforesaid offer letter was a proposal for provision of technical know-how with respect to sub-critical and super critical boilers with the lumpsum fees for technical know how was proposed at USD 7,6 million 4.8. Subsequently, after obtaining all the necessary approvals and fulfilling the regulatory Appellant JV was incorporated on 26 June 2010. 4.9. Thereafter, as per the requirements of the guidelines prescribed by the Government of India and to obtain the technological know-how for sub-critical and super critical boilers, the Appellant entered into an agreement dated18 August 2010 providing for the payment of the license fees of USD 6.5 million and royalty on sales at thetime entering into customer contracts in future. 4.10. The Appellant humbly submits that payment of license fees is to receive the technical know-how and the payment of royalty on sales is for use of the license to manufacture these boilers. Attention is also invited to Appendix D to the agreement which provides that the Appellant will have to pay an initial lumpsum fees of USD 6.5 million in 5 tranches to receive the technological know- how from BWPGG. Further, in addition to the initial license fees, the agreement provides that the appellant is required to pay royalty on each customer contract (Refer Pg No. 233n of the PB) 4.11. Accordingly, it can be concluded that the rationale and need for setting up the JV and entering into a technical know-how agreement is purely commercial and negotiated between two independent and unrelated parties. Rendition, need and benefit arising out of the technological know-how received from BWPGG: 4.12 Pursuant to this agreement, the appellant/TBWES has received material relating to installation of manuals, material properties, database and users guide, Standard Update, Standard (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd Manuals, Reference Drawi SWUP Training material, Installation DVDs. Training Manual, etc. The technological manufacturing the boilers was supplied by way of CDs, DVDs, hard copies, etc. to the Appellant (Ref page no. 342 to 352) 4.13. The Appellant submitted these documents to substantiate the rendition of services by WPGG and counter the allegation of the TPO that no services are received by the Appellant. 4.14. The DRP has taken a note of these items in its directions but have erroneously held that the cost of these gets covered in the payment of royalty on sales by the Appellant. 4.15. Accordingly, the Appellant submits that in the instant case rendition of technical know-how is demonstrated and accepted by the DRP and since the DRP has already taken a note of the same, there remains no further dispute on this account 4.16. The Appellant most respectfully submits that the rendition of these services has been appropriately proven by the Appellant before the DRP and same ought to be considered by the Hon’ble Tribunal. 4.17. In addition to the above, before the DRP, the Appellant had submitted certain copies of purchase contracts purchase orders and list of bids, on sample basis to demonstrate the benefit accruing to the Appellant out of the technological know-how received by it (Refer Pg Nos. 354- 415) 4.18. It is pertinent to note that the Appellant was able to secure these orders due to the technical know-how provided by BWPGG. These orders are the evidence of tangible benefits arising on account of technical know-how 4.19. since the gestation period is very long in this business, benefits by way of sales revenue would be realized in future years. 4.20. Thus, the Appellant humbly submits that the need and benefits of the technological know-how is also established by the Appellant by way of these documents. 4.21. However, the DRP has not accepted the contentions placed by the Appellant (backed by supporting documentation) and has upheld the proposed adjustment.

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd In view of the foregoing facts and submissions, the Appellant humbly submits that in the instant case, the Appellant has submitted all the necessary documentation to establish need, benefit and rendition of the services and hence the arm's length price for this transaction cannot be taken as NIL. Rendition of technological know-how is not a shareholder activity: 4.22. The meaning of shareholder/stewardship activity is not defined in the law. Borrowing the guidance from various judicial precedents and jurisprudence available on this, the Appellant submits that the meaning of the term stewardship' from dictionary, is: 'the job of supervising or taking care of something, such as an organization or property. To put it simply, it means an act of overseeing or taking care. In commercial context, stewardship activities are the activities undertaken by an enterprise to protect one's own interest. 4.23. One of the forms of stewardship activities is a shareholder activity, which takes place when some act or service is done by a shareholder to the company in order to ensure that his investment in the shares is safe and further such an act or service does not produce any effect to the company receiving it 4:24. In the instant case, the provision of technological know-how by BWPGG is in its role of a manufacturer of boilers and not in the role of a shareholder or an owner. 4.25. The intent of provision of these services is purely commercial and not primarily to protect its investment or interest. 4.26. By no stretch of imagination, it can be inferred that BWPGG has rendered these Services only to protect its own investment in the appellant. Au contraire the sole intention behind provision these services is supporting the conduct of the business of the appellant and advancement thereto. 4.27. Accordingly, it is humbly submitted that the provision of technological know-how for manufacturing boilers is not a shareholder activity. Arms Length Price (ALP) of the transaction cannot be NIL 4.28 At the very outset, the Appellant respectfully submits that Your Honours will appreciate that in the instant the Appellant has demonstrated the need, benefit and rendition of the services and accordingly, by THERMAX imagination the ALP for this payment of (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd technical fees be NIL. In present case, the lower authorities have erroneously held that the ALP for this transaction is NIL 4.29 The Appellant has submitted various documents to demonstrate the need, benefit and rendition of the technical know- how. The Appellant has also provided explanations and submissions in support of the benchmarking analysis conducted by it 4.30. It is noteworthy to mention that the nature of licensed products, scope of equipment, licensed technology, capacity of Boilers, etc. is identical in both the technical offer letter dated 11 August 2009 and the agreement dated 18 August 2010. 4.31 Thus, the offer letter dated 11 August 2009 which was between two independent and unrelated parties was to benchmark the transaction pursuant to the license agreement dated 18 August 2010 of payment for technical know-how in the TPSR and the transaction was held to be at arm's length 4.32 Since the Appellant had not filed this offer letter before the lower authorities, it has now filed the same before the Hon'ble Tribunal for Your Honour's consideration. 4.33 Further, before the DRP, the Appellant had submitted that the methodology of benchmarking this transaction is akin to CUP and the offer letter dated 11 August 2000 has highest degree of comparability with the technical license agreement dated 18 August 2010 4.34. The DRP disregarded the submissions made by the Appellant and held that none of the prescribed methods of benchmarking are followed by the Appellant and additionally, the Appellant has not been able to establish CUP as Most Appropriate Method (MAM) in the instant case and upheld the findings of the TPO. 4.35 Needless to say, any other method or any other comparable uncontrolled price, specifically in the given circumstances, will not possess such a high degree of comparability and thus cannot be applied to benchmark this transaction. 4.36.Even otherwise, the identical transaction ie provision of technological know-how w.r.t sub-critical and super- critical Boilers, would naturally be undertaken between two associated enterprises only (due to the requirement of formation of IV by the (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd Government) and thus the prices adopted in such agreements would not qualify to be a comparable uncontrolled transaction. Additionally, availability of such details in public domain is highly unlikely considering the intense negotiations and confidentiality norms. 4.37. Accordingly, the Appellant vehemently submits that the method akin to CUP ought to be accepted for benchmarking this transaction and the proposed fees of USD 7.6 million as per the offer letter ought to be taken as ALP for benchmarking this transaction. 4.38. Without prejudice to the above, the Appellant submits that if the contention of the Appellant that a method akin to CUP is MAM in the present case is not accepted, the Appellant would like to submit that the Other Method as per section 92C of the Act be taken as MAM and applied to the present case for holding that the offer letter and the agreement can be compared with each other. It is a settled legal position that Other Method can be applied retrospectively and thus the application of the same ought to be accepted in the Appellant's case. 4.39. To strengthen its contentions, the Appellant relies on the decision of the Hon'ble Delhi Tribunal in case of Toll Global Forwarding India (P.) Ltd vs. DCIT (37 ITRCT) 391 wherein the Hon'ble Tribunal has observed that the as long as one can come to the conclusion, under any method of benchmarking, that the price paid for controlled transactions is the same as it would have been under similar circumstances for an uncontrolled transaction, the price so paid can be said to be at arm's length. Further in this case, the Hon'ble Delhi Tribunal has held that 'Other Method' prescribed under section 92C of the Act can be applied retrospectively. The relevant extracts of the decision are reproduced as under: "25. In effect, thus, it would appear that as long as one can come to the conclusion, under any method of determining the arm's length price, that price paid for the controlled/transactions is the same as it would have been, under similar circumstances and considering all the relevant factors, for an uncontrolled transaction, the price so paid can be said to be arm's length price. As we have noted (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd earlier in this order, the price need not be in terms of an amount but can also be in terms of a formulae including interest rate, for computing the amount. In any case, when the expression price which...would have been charged or paid" is used in rule 10BA, dealing with this method, ins method the place of "price charged or paid", as is used in rule 10B(1)(a), dealing with CUP method, suc an expression not only covers the actual price but also the price as would have been, hypothetical speaking, paid if the same transaction was entered into with an independent enterprise. THERMAX hypothetical price may not only cover bona fide quotations, but it also takes it beyond any doubt or controversy that where pricing mechanism for associated enterprise and independent enterprise is the same, the price charged to the associated enterprises will be treated as an arm's length price. In this view of the matter, the business model said to have been adopted by the assessee, in principle, meets the test of arm's length price determination under rule 10BA as well.

26. No doubt, rule 10BA as also the corresponding enabling rule 10B(1)(f) are inserted by the Income Tax (SixthAmendment) Rules, 2012 and are specifically stated to be effective from 1st April, 2012, i.e. assessment year2012-13 onwards. However, in Supreme Court's five judge constitutional bench's landmark judgment, in the case of CIT v. Vatika Townships (P.)Ltd. [2014] 367 ITR 466/49 taxmann.com 249, the legal position in this regardhas been very succinctly summed up by observing that (if a legislation confers a benefit on some persons but without inflicting a corresponding detriment on someother person or on the public generally, and where to confer such benefit appears to have been the legislator subject, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd retrospective effect" Supreme Court has observed that "This (the foregoing analysis) exactly is the justification to treat procedural provisions as retrospective". Their Lordships then further observed that, "In Government of India v. Indian Tobacco Association [2005) 7 SCC 396 the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation" and that "The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra [2006] 6 SCC 286. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature." Their Lordships also noted that this retrospectively being attached to benefit the persons, is sharp contrast with the provision imposing some burden or liability where the presumption attaches towards prospectively.

27. It may appear to be some kind of a dichotomy in the tax legislation but the well-settled legal position is that when a legislation confers a benefit on the taxpayer by relaxing the rigour of pre-amendment law, and when such a benefit appears to have been the objective pursued by the legislature, it would a purposive interpretation giving it a retrospective effect but when a tax legislation imposes a liability or a burden, the effect of such a legislative provision can only be prospective. What logically follows from the law so settled by a constitutional bench of Supreme Court, is that the operation of rule 10BA, which confers the benefit of an additional method of ascertaining arm's length price and, inter alia, relaxes the rigour of CUP method, can only be retrospective in effect. In our considered view, therefore, rule 10BA is to be held as effective from 1st April, 2002, (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd Le, the time when transfer pricing provisions were introduced in India." 4.40. Further, this decision of the Hon'ble Delhi Tribunal is also affirmed by the Hon'ble Delhi High Court (381 ITR 38). 4.41. In conclusion, the Appellant most respectfully submits that the offer letter dated 11 August 2009 bears closest resemblance to the disputed transaction and the same should be accepted as comparable uncontrolled price for benchmarking this transaction. Accordingly, the transaction should be considered to be at arm's length and the adjustment made by the Ld. TPO ought to be deleted in entirety. 4.42. Without prejudice to the submissions above, the Appellant submits that the additional evidence filed by the Appellant i.e. the technical offer letter dated 11 August 2009, may sent back to the TPO/AO for limited factual verification of the benchmarking analysis conducted by the Appellant and meet the ends of justice.”

With regard to Ground No. 4 which is in respect of Erroneous 29. computation of arm's length price of the inter transaction of reimbursement of salary cost as NiL. Ld. AR of the assessee brought to our notice relevant facts relating to the ground and filed its submissions. For the sake of clarity, the submissions are reproduced below: - “5. During the year under consideration BWPGG had seconded certain employees to manage day to day business operations, having requisite skills and expertise, for the operation of its business, including the various projects that the Appellant undertakes from time to time. 5.2. As per the arrangement and agreement between TRWES and BWPGG, BWPCG paid remuneration to these personnel and the same is subsequently reimbursed by TBWES to BWPGG at cost without any mark-up 5.3. For the year under consideration, the Appellant reimbursed salary cost of Rs. 104.81.885 to BWPOG and the same has been reported as an international transaction in Form 3CEB. This salary cost pertains two of the employees namely Deepak Chopra (Chief Operating Officer) and Paul Greenhow (Controller). Thus, both of these employees held key position in the Appellant's business 5.4. In the TPSR, the Appellant has noted that since the transaction is on actual basis and does not include any mark up, the same is at arm's length.

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd B. Action of the TPO: 5.5. In the instant case, the TPO observed that the Appellant has not provided any documentary evidence to showcase whether the personnel have travelled on tourist or business visa 5.6. Further, it is not clear whether it was the requirement of the Appellant or the parent company that these employees be seconded to India. 5.7. Furthermore, the benefits received from these reimbursements has not been substantiated. 5.8. In view of the above, the TPO held that the arm's length price for this reimbursement is NIL. and proposed a TP adjustment of Rs. 1,04,83,885. C. Action by the DRP: 5.9 In the course of proceedings before the DRP, the Appellant submitted various documents and technical submissions / explanations to substantiate its claim. The DRP had called for a remand report from the TPO and the TPO vide letter dated 06 November 2015 has provided his comments on the additional evidence filed by the Appellant before the DRP and the same is placed at Pg No 417 to 420 of the PB. The Appellant's response dated 19 November 2015 to the aforesaid remand report is placed at Pg No. 421 to 434 of the PB. 5.10. However, the DRP held that these services are akin to intra- group services and since the Appellant has not been able to establish benefit test and willingness to pay test. Further, the DRP has also held that the corroboration using TNMM method cannot be accepted, in absence of other tests being satisfied in respect of intra group services. It has noted that the Appellant has not shown how the transactions are closely linked and how they cannot be evaluated adequately on a separate basis. 5.11. Further, the DRP observed that the Appellant has not made any sales during the year and has not been able to provide details regarding the services rendered by these employees 5.12. In conclusion, the DRP upheld the TP adjustment of Rs.1,04,83,885 proposed by the TPO. D. Submissions before the Hon’ble Tribunal : Aggrieved by the aforesaid TP adjustment made by the TPO/DRP, the Appellant is in appeal before the Hon’ble Tribunal and wishes to submit as under:

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd 6.1. At the outset, the Appellant would like to humbly submit that the transactions which are undertaken cost basis and without any mark-up are evidently at arm's length and there is no further requirement to benchmark such transactions. 6.2. Be that as it may, the Appellant has submitted a host of supporting documents and explanations before the DRP to support its claim and demonstrate the need and benefits of the secondment of employees by BWPGG. 6.3. Firstly, attention is invited to Para 11.2.2 of the shareholders' agreement between TL and BWIH at Pg No. 171 of the PB. In this para, it was specifically provided for BWPGG to second certain employees to India and the salary cost of the same will be reimbursed by the JV on cost-to-cost basis. 6.4. In addition to the above, the Appellant also has an agreement dated 14 January 2014 with BWPGG for reimbursement of employee cost placed at Pg Nos. 271 to 281 of the PB. This agreement specifically stipulates various terms and conditions with respect to secondment/ deputation of employees to the JV and reimbursement of the cost thereto. 6.5. It is worthwhile to note that the Para 6.1 (Pg No. 277 of the PB) specifies that this agreement shall take effect from the date on which the first employee is deputed by BWPGG to the Appellant. Hence, the secondment of employees in the captioned assessment year and reimbursement of costs gets covered within the scope of this agreement. 6.6. Before the DRP, the Appellant has provided various documents relating to these employees which are listed as under: Sr. PB Particulars of the Documents No. Reference 1. Form 16 of Deepak Chopra and Paul Greenhow 282 to 289 2. Visa of Paul Greenhow showing that Paul was travelling on 290 employment visa to India 3. Appointment letters of Deepak Chopra and Paul Greenhow 292 to 297 4. Minutes of Board meeting dated 18th August 2010 appointing 313 to 315 Deepak Chopra as the Chief Operating Officer of the Appellant 5. Minutes of the Board meeting dated 01 December 2010 which 316 show that it was attended by both Deepak Chopra and Paul Greenhow in their capacity as chief operating officer and controller respectively 6. Passport and Visa of Deepak Chopra 324-325 (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd 6.7. The Appellant trusts that Your Honours will appreciate that this is the first year of operation of the Appellant. Further, it is a JV between two different conglomerates. In order to conduct the business of the Appellant in efficient manner, it is important to employ employees with requisite skills and talent in this field. 6.8. BWPGG and Thermax are prominent leaders of this field and already have necessary human resources to conduct this business. In view of this, there is a specific understanding between the JV Partners that BWPGG may second certain employees to the JV for efficient functioning of business. The rationale for the same is documented in the shareholders' agreement as well as the agreement for reimbursement of employee cost. 6.9. Hence, BWPGG had deputed certain employees to the service of the JV and the cost of the same was reimbursed by the JV without any mark-up. 6.10. In view of the foregoing, the Appellant humbly submits that it has appropriately demonstrated and proved secondment of employees and has justified the reimbursement of employee costs by it to BWPGG. The Appellant has clearly showcased (with evidence) the work done by the seconded employees and its importance. 6.11. In addition to the above, the Appellant has supported the benchmarking done by it by providing suitable explanations and hence, it is humbly submitted that this transaction ought to be arm's length and the adjustment made by the TPO be deleted.”

(A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd 35. With regard to Ground No. 7 which is relating to Levy of interest u/s 234B of the Act, this ground is consequential in nature, accordingly, the same is allowed for statistical purpose.

ITA.NO. 733/MUM/2022 (A.Y. 2012-13)

38. On a careful perusal of the grounds raised by the assessee, we observe that these grounds are similar to grounds raised by the assessee in ITA No. 1735/MUM/2016 (A.Y: 2011-12) except for quantum of additions made by the Assessing Officer. Since facts in this appeal are mutatis mutandis, therefore the decision rendered in A.Y. 2011-12 is applicable to this Assessment Year also. In Ground No.1, assessee has raised two issues, first relating to disallowance of expenses, which is similar to the Ground No. 5 raised in A.Y. 2011-12, the relevant finding given in Para No. 33 is applicable mutatis-mutandis, hence this ground of assessee is dismissed. With regard to the disallowance of reimbursement of expenses, this issue is similar to the issue raised by the assessee in A.Y. 2011-12, the relevant findings given in Para No. 31 is applicable mutatis-mutandis. Accordingly, this ground of appeal is partly allowed as indicated above. Ground No. 1.1 is relating to (A.Y: 2011-12) (A.Y: 2012-13) Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd disallowance of depreciation claimed on technical know-how fees, which is similar to Ground Nos. 2 and 3 raised in A.Y. 2011-12, the relevant finding given in Para Nos. 26 to 28 is applicable mutatis-mutandis. Accordingly, this appeal is partly allowed as discussed in the above paragraphs.