MWH INDIA P.LTD,MUMBAI vs. ASST CIT CIR 12(3)(2), MUMBAI

This is the bunch of 8 appeals of M WH India private limited (the assessee/appellant) for assessment year 2010 – 11 to 2017 – 18 involving similar issue, parties also argued them together, submitted a common chart, facts and circumstances for all these years are identical, therefore, heard together and disposed of by this common order.

Assessment year 2010 – 11 is with respect to filed by the assessee against the assessment order passed by the Dy. Commissioner of Income Tax-12(3)(2), Mumbai (the learned Assessing Officer) on 8th January, 2015 under Section 143(3) read with section 144C (13) of the Income-tax Act, 1961 (the Act), passed in pursuance to the direction issued under Section 144C(5) of the Income-tax Act, 1961 (the Act) by the Dispute Resolution Panel- IV, Mumbai (the learned DRP) on 19th December, 2014, wherein the objections of the assessee against the draft order passed on 7th March, 2014, incorporating the adjustment proposed by the learned Transfer Pricing Officer- (1)(8), Mumbai (the learned TPO) as per order under Section 92CA(3) of the Act, dated 24th January, 2014, proposing an adjustment of Arms Length Price of international transaction of payment towards corporate charges was made and confirmed by the learned Dispute Resolution Panel is in challenge.

Assessee is a company engaged in the business of engineering, plant commissioning, design and build, performance monitoring and related service in the filled of waste water management. It

It also possesses in-house expertise and facilities for undertaking field analysis, investigation related to water supply. Assessee filed its return of income for A.Y. 2010-11 on 15th 05. October, 2010 at a loss of ₹32,42,369/-. As the assessee has entered into six different types of international transactions, reference was made to the learned TPO for determination of Arm's Length Price. The learned TPO examined the international transaction of payment by the assessee towards corporate charges of ₹1,17,42,745/-. The learned Transfer Pricing Officer asked the assessee to justify the payment of above sum and also issued a show cause notice that why it should not be treated as nil in conformity of the view taken by the learned Transfer Pricing Officer during the previous years.

Assessee objected to the same and submitted that the corporate costs are incurred which includes cost of office of the President, Chairman and CEO, corporate planning and development, corporate accounting, tax, Finance and Treasury functions,

The learned Transfer Pricing Officer on examination of the submission of the assessee held that the intra group services transactions as Cross-charges is an independent transaction required to be analyzed under the Comparable Uncontrolled Price (CUP) method. He referred to OECD guidelines and held that no charge should be paid for the intra group services which the taxpayer is performing by it also. He further, held that the taxpayer has to prove that the services are rendered and commensurate benefits derived there from. He further held that the services are duplicative in nature and are in the form of shareholder' activity. Due to this an independent third party would not have made payment for this service. Accordingly, he treated the Arm's Length Price of management fees paid of ₹1,17,42,745/- as nil. The above adjustment was proposed by the order dated 24th January, 2014 passed under Section 92CA (3) of the Act by the learned Transfer Pricing Officer.

On receipt of the order of the learned Transfer Pricing Officer, the learned Assessing Officer passed a draft assessment order on 7th March, 2014 incorporating the above addition. The learned Assessing Officer further noted that the assessee has unbilled receivable of ₹4,29,93,962/- and the above sum is required to be

The assessee preferred the objection before the learned Dispute Resolution Panel. Vide ground no.2, the learned Dispute Resolution Panel vide Para no. 6.3 to 6.7 upheld the order and the learned Transfer Pricing Officer of determining the Arm's Length Price of intra group services of ₹1,17,42,745/-at rupees nil. With respect to the addition of unbilled revenue, the learned Dispute Resolution Panel held that the assessee failed to substantiate that whether the unbilled Revenue shown as asset in the balance sheet has been offered by assessee as income. As no details were furnished, the addition was upheld. With respect to the addition of mismatch between the income recorded in accounts and income shown in form no. 26AS of bank interest was also confirmed as same was not reconciled. Such directions were passed on 19th December, 2014. Based on this, the final assessment order was passed on 9th January, 2015, assessing the total income at ₹5,19,26,540/-. Assessee is aggrieved with that and is in appeal before us.

In assessee has raised three grounds of appeal as under:-

The learned Authorized Representative drew our attention to Paper Book filed by the assessee containing 192 pages. Another Paper Book was also filed wherein the remand report of the learned Assessing Officer, rejoinder of the assessee and additional evidences filed before the learned Dispute Resolution Panel were also placed on record. The learned Authorized Representative further submitted that the assessee has submitted the copy of the invoices, agreement, emails, cost allocation details, etc. however, despite this, the learned Transfer Pricing Officer has determined the Arms Length Price of the international transactions at ₹ nil. He referred to page no. 1 to 77 of the Paper Book to show that vide letter dated 9th January, 2014, the complete details were filed before the learned Transfer Pricing Officer. He also submitted that for A.Y. 2009-10, identical issue arose in case of the assessee of determination of Arms Length Price wherein though in the final order addition on this account was made and therefore, addition was deleted. He otherwise submitted that assessee has provided all the details which proves the rendition of services, need of the services, benefit arising from the above service and further, those services are not duplicative or shareholders activity. In view of this submission, the learned Transfer Pricing Officer and Dispute Resolution Panel have wrongly determined the Arms Length Price of these services at ₹ nil. He submitted that in determining the Arms Length Price the learned Transfer Pricing Officer and the Dispute Resolution Panel has not adopted any method. It was also submitted that the additional evidence submitted by the assessee showing the

With respect to the addition on account of unbilled services, He submitted that the above amounts are outstanding as current assets of the assessee. He submits that the above amount represents the work performed by the assessee till the end of the accounting year for which bill is yet to be raised. This income is always credited to the profit and loss account and therefore, it can be shown as an asset as unbilled revenue in current assets. He submits that when the income is already offered once, addition of the same once again amounts to double addition. He referred to the order of the co-ordinate Bench for A.Y. 2009-10, wherein vide order dated 3rd October, 2022 vide paragraph no.11, the issue was restored for verification of the above. He submitted that there is no objection if the same is also restored to the file of the learned Assessing Officer to that limited extent. With respect to the submission made before the learned Assessing Officer, he referred to the assessment order as well as the submission before the learned Dispute Resolution Panel. With respect to the third ground on account of addition being difference between financial accounts and form no.26AS, assessee submitted that merely because there is a difference between form no.26AS and financial statement, the addition cannot be made. He further submitted the copy of letter dated 24th June, 2014, 5th May, 2014 and the statement of the assessee to show that merely if there is a difference, the addition cannot

The learned Departmental Representative supported the order of the learned Transfer Pricing Officer and submitted that if the assessee does not satisfy the need test, the rendition test, benefit test, duplicative test and shareholder activity test, the Arms Length Price deserves to be deleted at ₹ nil. There is a specific method adopted by the learned Transfer Pricing Officer which is CUP method as in the similar circumstances, nobody would have paid any sum to a third party. On other issues, he relied on the orders of the lower authorities.

We have carefully considered the rival contention and perused the orders of the lower authorities. The fact shows that assessee has made payment of 1,17,42,745/– as corporate charged to 5 different entities. The payment was made by the assessee for provision of corporate services to the assessee for illegal, advisory, technical and financial direction and support. The assessee has entered into an agreement with all these five entities, which are placed at page number 12 to 68 of the paper book. Assessee also explained that how the charges are raised on the assessee. It explained that in some of the cases 2% of external sales are recovered from assessee, in some cases there is an allocation of expenditure. The copies of invoices were placed before the learned assessing officer. With respect to the rendition of the services, assessee submitted the details of emails received. Thus, the claim of the assessee is that based on agreements, emails and invoices of the associated enterprises proves that assessee has received those services. Before the learned dispute resolution panel assessee submitted email

Coming to the ground number 2 where there is an addition on account of on unbilled receivable shown by the assessee of ₹ 42,993,962. On careful analysis of the facts we find that the method adopted by the assessee for accounting these unbilled services is that on completion of a specified percentage of work on a project the proportionate income is recognized in the profit and loss account by crediting the revenue income and debiting the unbilled receivable income. When subsequently on completion of the project or on achieving the preset milestone the final invoices raised on the customer and the entry passed in the accounts at that stage amount is debited to the customer's account by crediting the unbilled receivable account. This shows that assessee is creating work in progress at the end of the year of the ongoing projects by crediting the same to the profit and loss account and creating a work in progress in the form of unbilled receivable. The learned AO, DRP has misconstrued the

Ground number 3 of the appeal is with respect to the addition on account of difference between the financial statements of the assessee and form number 26AS with respect to the interest

Ground number 4 is general in nature, no arguments were advanced, therefore, same is dismissed.

In the result appeal of the assessee for assessment year 2010 – 11 is allowed with above direction for statistical purposes.

For assessment year 2011 – 12 in ITA number 2133/M/2016 assessee has raised identical grounds.

Ground number one is with respect to the adjustment on account of arm's-length price of the international transaction of payment

Ground number two of the appeal is with respect to addition on account of unbilled serviceable amounting to ₹ 45,666,320/- which is identical to ground number 2 of the appeal of the assessee for assessment year 2010 – 11. This ground of appeal involves identical facts and circumstances, for assessment year 2010 – 11 we have allowed the claim of the assessee. Therefore for the similar reasons ground number 2 of the appeal of the assessee is allowed.

Accordingly ITA number 2133/M/16 for assessment year 2011 – 12 is partly allowed for statistical purposes.

The first ground in all these appeal is with respect to adjustment on account of payment towards shares service expenses/corporate charges. The assessee has paid those charges to its associated enterprises which are determined at arm's-length price by the learned TPO/DRP at rupees nil. The facts are identical to ground number 1 in the appeal of the assessee for assessment year 2010 – 11 wherein we have set-aside the whole issue back to the file of the learned assessing officer/transfer pricing officer with a direction to the assessee. With similar direction we set-aside these grounds back to the file of the learned transfer pricing officer for fresh determination of arm's- length price of these intragroup services. Accordingly ground number 1 ( in ITA number 2015 – 16 where it is ground number 2) are allowed with above direction.

For all those years starting from assessment year 2012 – 13 to assessment year 2017 – 18 there is an addition on account of unbilled receivables. This issue has already been decided in the case of the assessee for earlier assessment year as well as in assessment year 2010 – 11 wherein the issue has been set-aside to the file of the learned assessing officer to determine whether there is a double addition on this account or not. Accordingly for similar verification, this ground of the appeal for all these years are set-aside to the file of the learned AO. Accordingly for all

For assessment year 2012 – 13 the assessee has not been granted credit for tax deduction at source of ₹ 912,536/–. For assessment year 2013 – 14 similarly tax credit of ₹ 28,300,548 is denied. On careful consideration, we direct the learned assessing officer to verify the above credit and if same is found in accordance with the law, Grant the same. In the result ground with related to non-granting of credit for tax deducted at source to the assessee is allowed for assessment year 2012 – 13 and 2013 – 14 with above direction.

Ground number 4 for assessment year 2012 – 13 and 2013 – 14 and ground number three with respect to the assessment year 2014 – 15 to 2017 – 18 are general in nature, no arguments were advanced, and therefore same are dismissed.

In the result all these eight appeals filed by the assessee are allowed for statistical purposes with above direction.