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Income Tax Appellate Tribunal, “K” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 30.10.2013 passed by the learned CIT(A)-15, Mumbai and it relates to A.Y. 2008-09. Though the assessee has raised many grounds and also an additional ground, at the time of hearing, learned AR advanced his arguments on the following three issues and submitted that other grounds are academic in nature :-
(1) Whether TP adjustment is required to be made at the entity level or only to the transactions entered between associated enterprises. (2) Whether the learned CIT(A) was justified in rejecting the additional evidences filed by the assessee under rule 46A. (3) Claim for deduction of foreign exchange losses arising on revaluation of balance as at the year end.
2 M/s. SNC Lavalin Engineering India Pvt. Ltd. 2. Third issue cited above has been raised by way of additional ground of appeal.
The assessee company is engaged in the business of engineering consultancy services and supply of equipments. The assessee has undertaken following international transactions:-
Provision of Engineering services to 18,13,99,429 CUP various projects 2 Provision of Engineering Services to 85,42,578 CPM Power Plant projects 3 Availment of Engineering services 1,42,28,085 CPM 4 Availment of Loans and Advances 4,34,52,989 - 5 Recovery of Expenses 40,59,600 At Cost 6 Reimbursement of Expenses 3,77,66,694 At Cost 28,94,49,374 Total In respect of first item, the assessee selected CUP method for bench marking transactions. In respect of second and third items, the assessee adopted Cost Plus Method (CPM). The Assessing Officer referred the international transactions to the transfer pricing officer for determining arm’s length price of transactions. The TPO rejected the methods adopted by the assessee for the reasons recorded by him and preferred to determine arm’s length price under Transactional Net Margin Method (TNMM). The TPO noticed that the assessee did not furnish segmental report of financials. Subsequently the assessee filed unaudited segmental reports before the TPO, but the same was rejected by the TPO. The TPO selected several comparables and computed average margin of comparables by adopting OP/TC at 36.77%. The TPO adopted the same as arm’s length margin and accordingly proposed adjustment of ` 15.95 crores. Before the learned CIT(A), the assessee furnished audited segmental accounts and requested him to admit the same as additional evidence. However, the learned CIT(A) refused to admit the audited segmental accounts and confirmed the addition proposed by TPO. Aggrieved, the assessee has filed this appeal before the Tribunal.
3 M/s. SNC Lavalin Engineering India Pvt. Ltd.
Learned AR submitted that the assessee did not have audited segmental accounts when proceedings before TPO were going on. Subsequently, the assessee prepared segmental accounts and got it audited and produced the same before the learned CIT(A). The Learned AR submitted that the Coordinate Bench of the Tribunal in the case of Smt. Avan Gidwani (ITA No. 5138/Mum/2015 dated 6.4.2016) has held that additional evidences are vital documents which are required to be considered in order to adjudicate the issues in judicious manner. It was further held that the principle of “Audi Alteram Partem” i.e. no man should be condemned unheard is the basic canon principles of natural justice. Accordingly, the Coordinate Bench in the above said case, admitted the additional evidences furnished before the learned CIT(A). The Learned AR submitted that, in the interest of natural justice, additional evidences should have been admitted by the Ld CIT(A). Accordingly he submitted that the Ld CIT(A) may be directed to admit additional evidences and the issues may be restored to his file for adjudicating the issues afresh by considering additional evidences.
The Learned DR, on the contrary, submitted that the assessee did not furnish these documents before the TPO during course of assessment proceedings and it did not cite proper reasons before the learned CIT(A) in terms of Rule 46A of the I.T. Rules. Hence the learned CIT(A) was constrained to reject the additional evidences. Learned DR submitted that, in case, the Tribunal admits these additional evidences, the same may be restored to the file of the TPO for examining it afresh instead of restoring to the file of Ld CIT(A).
We have heard the parties on this issue and perused the record. We noticed that the assessee has not prepared segmental accounts initially and hence it could furnish only unaudited segmental accounts before TPO. Hence the TPO has rejected the same doubting about its reliability. Subsequently, the assessee has prepared proper segmental accounts and got it audited and 4 M/s. SNC Lavalin Engineering India Pvt. Ltd. furnished the same before the learned CIT(A). We notice that the Ld CIT(A) has refused to admit the same for technical reasons. As held by the Coordinate Bench in the case of Smt. Avan Gidwani (supra), the additional evidences furnished by the assessee in the form of audited segmental accounts may be vital documents that may be required to adjudicate the issue in judicious matter, particularly in view of the fact that the TPO has changed the methodology altogether to determine the ALP of international transactions. Accordingly, we admit the additional evidences. Since, the issue is required to be examine afresh, as per the plea of learned DR, we restore the issue relating to determination of arm’s length price to the file of Assessing Officer/TPO for examining it afresh by duly considering the additional evidences furnished by the assessee. After hearing the assessee, they may take appropriate decision in accordance with the law.
The next issue contested by the assessee relates to question whether TP adjustment is required to be made at entity level or to be restricted with the transactions entered between AE. The Learned AR submitted that the assessee had raised this ground before the learned CIT(A) also, but the learned CIT(A) did not adjudicate the same. He submitted that this issue has since been decided by Hon'ble Bombay High Court in the case of CIT Vs. M/s. Thyssen Krupp Industries India P. Ltd. (Income Tax Appeal No. 2201 of 2013 dated 2.12.2015), wherein it was held that the adjustments should be restricted to transactions between the parties.
We heard learned DR on this issue and perused the record. We noticed that the learned CIT(A) has not adjudicated this issue. Since we have restored the matter relating to determination of arm’s length price to the file of the AO/TPO, we prefer to restore this issue also to them.
The next issue contested by the assessee relates to claim for deduction of foreign exchange loss of `41.84 lakhs arising on revaluation of 5 M/s. SNC Lavalin Engineering India Pvt. Ltd. debtors/creditors and advances/losses balances as at the year end. The assessee has raised this plea by way of additional ground.
The Learned AR placed reliance on the decision rendered by Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC) and also decision rendered by Hon'ble Bombay High Court in the case of Pruthvi Brokers and Shareholders Pvt. Ltd. (2012) 349 ITR 336 and submitted that all facts relating to the claim are available on record and accordingly prayed that the additional ground may be admitted. The Learned AR further submitted that this issue is squarely covered by the decision of Hon'ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd. (2009) 179 Taxman 326.
The Learned DR, on the contrary, submitted that this issue should be restored to the file of the Assessing Officer for examining it afresh. The Learned DR submitted that the Assessing Officer may be directed to examine the accounting policy followed in this regard earlier years and also be directed to verify as to whether the assessee is consistently following same method of revaluing the debtors and creditors, loss or advances every year.
We have heard both the parties on this issue. Since facts relating to the claim of the assessee are already available on record, we admit the additional ground raised by the assessee. Since the same requires examination at the end of the Assessing Officer, we restore the same to the file of the Assessing Officer with the direction to examine the same by duly considering accounting policy consistently followed by the assessee and take appropriate decision in accordance with law.
Needless to mention, the assessee should be provided with adequate opportunity of being heard.
6 M/s. SNC Lavalin Engineering India Pvt. Ltd. 14. In the result, appeal filed by the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 15.3.2018.