DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 1(1)(1), BANGALORE vs. M/S. ANSALDO STS TRANSPORATION SYSTEMS PVT. LTD., BANGALORE

Ld.AR submitted that assessee is a wholly owned subsidiary of Ansaldo STS, Netherlands. It has also been submitted by assessee that, Ansaldo STS, Netherlands transferred the equity shares held by it in assessee company to Ansaldo STS, Australia Pty Ltd who became the immediate holding company w.e.f. June 2008.

At the outset Ld.AR submitted that, during the year under consideration assessee undertook various projects for installation and commissioning of signalling systems for Indian Railways. It has been submitted that these projects were procured by assessee by way of open tender floated by Government of India. Ld.AR submitted that assessee on receipt of tender, undertook the activity of supply of signalling systems and provided engineering design support services are akin to software development services to Ansaldo Group. Ld.AR submitted that, for year under consideration assessee entered into following international transactions with:

It has been submitted by him that, in respect of services pertaining to SWD, Ld.TPO raised no objection and accepted the margin computed by assessee. The dispute arose in respect of licensed manufacturing segment in which assessee incurred huge loss of Rs.46,34,27,239/-. The Ld.AR submitted that, show cause notice was consequentially issued to assessee to justify the claim of adjustments made under the licensed manufacturing segment being exchange fluctuation, bank charges, interest charges, management fee. Ld.AR also submitted that, Ld.TPO

Ld.TPO thus aggregated exchange fluctuation, bank charges, management fees with the manufacturing segment and computed proposed adjustment being shortfall at Rs.12,12,26,284/-.

Ld. AO while passing draft assessment order further disallowed a sum of Rs.3,17,96,698/- being notional forex loss computed by Ld. TPO/AO while passing the draft assessment order by relying on decision of Hon’ble Madras High Court in case of Indian overseas bank vs CIT reported in 250 ITR 146.

Aggrieved by proposed adjustment, assessee raised objection before Ld.CIT(A) who upheld action of Ld.TPO of aggregating the expenses to manufacturing segment. Ld. CIT (A) however deleted the addition amounting to Rs.3,17,96,698/- being notional forex loss computed by Ld. TPO/AO.

Aggrieved by addition confirmed/deleted by Ld.CIT(A), assessee and revenue are in appeal before us now.

Ld.AR submitted that, the projects undertaken by assessee contributed approximately 70-75% of overall revenue on an annual basis and was expected to be completed by financial year 2011-12. He also submitted that the project till date is not completed the due to unforeseen delay and in the absence of escalation clause in the agreement entered with Indian Railway

He also submitted that various documents that has been placed before this Tribunal by way of additional evidence under Rule 29 for admission, could not be filed before the authorities below due to circumstances beyond control. He submitted that these documents establish the losses incurred by assessee, was mainly due to delay in completion of the projects are not attributable to transaction entered with AE.

Ld.AR further submitted that during the Transfer Pricing assessment proceedings, Ld.TPO did not demonstrate the basis on which the comparables were selected in the show cause notice. He submitted that, Ld.TPO also has not discussed the FAR similarities of assessee with proposed comparables to Page 6 of 9 IT(TP)A No.2331/Bang/2016 IT(TP)A No.213/Bang/2017 ascertain functional similarities as necessitated under Transfer Pricing provisions of law. 13. Ld.AR thus requested for the issue to be remanded for de novo assessment. 14. Ld.CIT DR placed reliance on the written submission filed by him on 13/10/2020 wherein he supports the orders passed by authorities below. 15. We have perused submissions advanced by both sides in light of records placed before us. 16. We are hereby considering both assessee’s and revenue’s appeal together as grounds raised

We note that in the show cause notice issued to assessee, reproduced in the order passed by Ld.TPO under section 92CA, Ld.TPO failed to follow the due process of law in respect of proposing comparables for computing the ALP of international transaction in manufacturing segment. Ld.TPO is therefore, directed to issue show cause notice with proposed comparables in accordance with law.

Also, in respect of bank charges, interest charges, management fees assessee should establish categorically based on cogent materials/evidences of how it should not be considered as operating for the purposes of computing margin of licensed manufacturing segment.

Assessee is therefore directed to file all relevant documents/evidences/information necessary to establish its claim in respect of aggregation/segregation of the costs alleged in the order passed by Ld.CIT(A)/Ld.TPO. Assessee is also directed to file its response to various comparables proposed by Ld.TPO. Ld.TPO shall then pass a detailed order considering all the material evidences placed by assessee and compute the margin in accordance with law.

We therefore, remand the issue to Ld.AO/TPO for de novo assessment as per Transfer Pricing provisions in accordance with Page 8 of 9 IT(TP)A No.2331/Bang/2016 IT(TP)A No.213/Bang/2017 law. Needless to say that assessee shall be granted proper opportunity of being heard. Accordingly grounds raised by assessee and revenue stands allowed for statistical purposes. In the result appeal is filed by assessee and revenue stands allowed for statistical purposes. Order pronounced in the open court on 27th Oct, 2020