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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI A. K. GARODIA & SHRI LALIET KUMAR
Per Laliet Kumar, Judicial Member
The present appeal is filed by the assessee feeling aggrieved by the assessment order passed by the AO pursuant to the directions issued by the DRP for the Assessment Year 2011-12 dated 30.12.2015. Based on that the AO had made the TP adjustment of Rs.12,50,81,776/-, on the following grounds:
The orders passed by the learned Deputy Commissioner of Income-tax 1. Circle 3(1)(2) (Assessing Officer); learned Deputy Commissioner of Income-tax Transfer Pricing - 1(3)(1) (Transfer Pricing Officer/ TPO); and Honorable Dispute Resolution Panel [collectively referred as "lower income tax authorities" for brevity] are bad in law and liable to be quashed.
IT(TP)A No. 533/Bang/2016 Page 2 of 7 The learned Assessing Officer has erred in making a reference to TPO for 2. determining arm's length price without demonstrating as to why it was necessary and expedient to do so. The Honorable DRP has erred in confirming the action of the Assessing officer. The lower income tax authorities have erred in 3. (a) making transfer pricing adjustment of INR 12,50,81,776/-; (b) passing the order without demonstrating that appellant had motive of tax evasion; (c) not appreciating that there is no amendment to the definition of "income" and charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in law; and (d) passing the orders without considering all the submissions and/or without appreciating properly the facts and circumstances of the case and the law applicable. Grounds relating to Transfer pricing: 4. The lower income-tax authorities have erred in: (a) not accepting the transfer pricing analysis undertaken by the Appellant on the basis of available comparables and in accordance with provisions of this Act and Rules; (b) in rejecting the Comparable Uncontrolled Price method ("CUP") adopted by the Appellant which was the most appropriate method best suited to the facts and circumstances of the case for determining arms length price; (c) in conducting a fresh analysis under Transaction Net Margin Method ("TNMM") despite absence of any defects in the transfer pricing analysis submitted by the Appellant; (d) in computing a Profit Level Indicator without excluding the non- operative expenditures and not considering the submissions made by the Appellant in this regard;
(e) adopting comparables even though they are functionally different from the business carried on by the Appellant and having related party transactions of more than 25% of the net sales; (f) adopting comparables without giving the basis or any search strategy/ process; 5. Without prejudice to the above, the TPO has erred in rejecting some of the comparables identified by the Appellant in the alternative transfer pricing analysis provided by the Appellant on the basis that they were 'normal builders'. Further, the TPO has factually erred in stating that only IT(TP)A No. 533/Bang/2016 Page 3 of 7 comparables engaged in infrastructure or major construction projects have been selected.
6. Without prejudice to the above, the lower income tax authorities have erred in: (a) not making proper adjustment for enterprise level and transactional level differences between the appellant and the comparable companies (b) not appreciating that the law does not compel adopting many (or any minimum) companies as comparables and that the appellant could justify the price paid / charged on the basis of any one comparable only.
7. The lower income tax authorities have erred in law in not granting the variation as per the proviso to Section 92C(2) of the Act. Other Grounds 8. The learned AO has erred in levying a sum of INR 9,13,140/- as interest under section 234A and INR 1,32,40,530/- as interest under section 234B. On the facts and in the circumstances of the case, interest under section 234A and 234B is not leviable. The Appellant denies the liability to pay interest under section 234A and 234B.
The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law.
2. The brief facts of the case are M/s Geodesic Yongnam Structurals Private Limited (hereinafter referred as 'Appellant') was incorporated on 23.03.2010 under the Companies Act 1956. The Appellant is a joint venture between Geodesic Techniques Private Limited ("GTPL") and Yongnam Engineering & Construction Private (hereinafter referred as `Yongnam' for brevity). The Appellant is engaged in the business of providing integrated design, engineering, and construction services for steel intensive construction for infrastructure projects.
3. The Appellant was specifically formed for the execution of structural steelworks contract at Mumbai International Airport, Common User Terminal and undertake any other projects in India or outside India. The structural steelworks at IT(TP)A No. 533/Bang/2016 Page 4 of 7 Mumbai International Airport includes execution of engineering, detailing, supply, fabrication, painting, transportation, delivery and direction of structural steelworks.
4. For the year under consideration a return of income was filed by the Appellant on 31.03.2012 declaring a total income of Rs 1,58,63,755/- and accordingly, a tax of Rs.52,69,545/- was determined and paid.
5. Transfer Pricing Analysis of the Appellant:
During the year under consideration, the Appellant had entered into international transactions with its associated enterprises. The Appellant purchased materials from associated enterprise to the tune of Rs. 36,26,61,646/-. The Appellant benchmarked the above international by adopting Comparable Uncontrolled Price (`CUP') method as the most appropriate method wherein the price charged by the associated enterprise to the unrelated parties was compared with the price charged by the associated enterprise to the Appellant for the similar product. Following table provides the details of price charges by the associated enterprise to the Appellant and unrelated third parties.
Purchase of fabricated steel Price charged SI.No. structure (SGD per Metric Ton) from AE 1 Geodesic Yongnam Structurals Pvt Ltd 2,995 2 Unrelated Parties 4,960 to 5,270 3 Larsen & Turbo Ltd 3.300
The TPO was not satisfied with the TP study of the assessee and the method used by the assessee for the purpose of bench marking. The TPO had issued a show cause notice for rejecting the CUP method adopted by the assessee and sought to analyse the ALP adjustment on the basis of TNMM. After receiving a reply from the assessee, the TPO had concluded the TP analysis and had recommended the ALP adjustment of Rs12,50,81,776/-. Feeling aggrieved by the TPO’s order, the IT(TP)A No. 533/Bang/2016 Page 5 of 7 assessee filed an appeal before the DRP raising various grounds regarding the adjustment proposed in the TPO’s order and also for application of TNMM. In the estimation of the assessee, the CUP was the most appropriate method. The DRP in its final direction had rejected the grounds raised by the assessee with respect to MAM and has partly granted relief by applying the TNMM. Pursuant to the direction issued by the DRP, the AO passed the final assessment order wherein the TP adjustment stood reworked the same as originally proposed by the TPO. The AO passed a fair order of assessment making the addition on account of determination of ALP by TPO. Aggrieved by the additions made in the fair order of assessment, the assessee has raised several grounds of appeal challenging the additions on several grounds.
At the outset, the learned AR had submitted that the order passed by the TPO/DRP was cryptic and non-speaking order and therefore the matter is required to be sent back to the TPO/DRP for passing a detailed speaking order. Our attention was drawn to page 3 and page 4 of the TPO order and also to page 3 of the DRP order. Further, the learned AR for the assessee had relied upon the decision of the Co-ordinate Bench in the case of Lapp India Pvt. Ltd., [TS-129-ITAT- 2018Bang)-TP].
Per contra, the DR submitted that the authorities below have not given the detailed finding with respect to MAM and had summarily came to the conclusion that the CUP Method adopted by the assessee was not correct and had embarked upon to decide the TP analysis on the basis of TNMM.
We have heard the rival contentions and perused the material on record. From the perusal of the order passed by the DRP at page 3, it is clear that the DRP has merely concurred the finding of the TPO for the purpose of rejecting CUP method adopted by the assessee. It s expected that the DRP will discuss facts in some detail and not cursorily and come to briefly stated conclusions on that basis. In our view, it was incumbent upon the authorities to pass a reasoned speaking order disclosing the reasons as to why the CUP is not the most appropriate method. Undoubtedly, the assessee has contended before the lower authorities that the IT(TP)A No. 533/Bang/2016 Page 6 of 7 assessee has provided similar material (fabricated material) to its AE to unrelated parties. For that purpose, the assessee had also brought on record the certificate issued by the Engineer and also the Affidavit of the Director saying that the material supplied by the assessee to its AE and its unrelated parties situated in Singapore were similar. These factual findings were required to be examined by the lower authorities, and, if on examination it is found that there is no reasonable distinction or distinguishable features in the material supplied by the assessee to its AE and its unrelated parties in Singapore, then the CUP should be applied as most appropriate method. As the needful was not done by the lower authorities, therefore we are of the opinion that these aspects are required to be remanded back to the file of the DRP for examining afresh based on the material available on record. Needless to say, while examining the aspect of most appropriate method, the assessee shall be given opportunity of hearing and the DRP may, if so required, call upon the TPO/AO to give remand report of the material. Based on the above said exercise, the DRP shall pass a reasoned speaking order as to why the CUP is not the most appropriate method for benchmarking the international transactions. Since, we are remanding the matter to file of the DRP with the above said observations, therefore, we are not deciding any other ground raised before us by the assessee. Needless to say, if the DRP comes to the conclusion that CUP is the appropriate method, in that eventuality, the DRP shall be bound by the decision rendered by the Tribunal in the matter of Lapp India Pvt. Ltd., [TS-129-ITAT-2018Bang)-TP]. In view of the above, the appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.