SOLAR TURBINES INDIA P.LTD,MUMBAI vs. DCIT 15(3)(2), MUMBAI

आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ ‘के’ म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI श्री राजेंद्र, ऱेखा सदस्य एवुं श्री शक्तिजीि दे, न्याययक सदस्य के समक्ष BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER आयकर अपीऱ सं. / ITA no. 1075/Mum./2016 (निर्धारण वषा / Assessment Year : 2011–12) Solar Turbines India Pvt. Ltd. (Formerly known as Turbomach India P. Ltd.), 401, 402, 403, 4th Floor ……………. Appellant Powai Plaza, Hiranandani Business Park Powai, Mumbai 400 076 PAN – AABCT7422R v/s Dy. Commissioner of Income Tax Circle–15(3)(2), Aayakar Bhawan ……………. Respondent 101, M.K. Road, Mumbai 400 020 निर्धाररती की ओर से / Assessee by : Shri Arvind Sonde a/w Shri Ketan Ved रधजस्व की ओर से / Revenue by : Shri N.K. Chand सुिवधई की तधरीख / आदेश घोषणध की तधरीख / Date of Hearing – 05.10.2016 Date of Order – 02.01.2017 आदेश / ORDER शक्तिजीि दे, न्याययक सदस्य के द्वारा / PER SAKTIJIT DEY, J.M.

Captioned appeal at the instance of assessee is directed against the assessment order dated 6th January 2016, passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act") for the 2 Solar Turbines India Pvt. Ltd. assessment year 2011–12, in pursuance to the directions of the Dispute Resolution Panel (DRP). Grounds raised by the assessee are reproduced below:– “1. The learned Assessing Officer / Dispute Resolution Panel / Transfer Pricing Officer have erred in making transfer pricing adjustment of Rs. 32,35.68,333/- on account of an alleged international transaction of provision of liasioning support services/ indenting services by Appellant to its associated enterprise without having regard to functions, assets and risk profile of the Appellant.

3. The learned Assessing Officer! Dispute Resolution Panel / Transfer Pricing Officer erred in cherry picking of commission agreements and making commission income adjustment wherein an arbitrary rate of commission is charged on the sales executed without appreciating the submissions made by the Appellant.

4. The learned Assessing Officer! Dispute Resolution Panel! Transfer Pricing Officer erred in computing transfer pricing adjustment by imputing an average rate of commission at 15.83 percent on the contract for supply of turbines by associated enterprises to third party customers pertaining to years earlier than the assessment year 2011-12.

5. The learned Assessing Officer / Dispute Resolution Panel / Transfer Pricing Officer erred in computing commission income adjustment by taking entire contract values between associated enterprise and third party customers for the purpose of computing the indenting commission instead of taking the amount actually received by associated enterprise from third party customers during the assessment year 2011-12.

6. The learned Assessing Officer / Dispute Resolution Panel / Transfer Pricing Officer erred in not sharing complete details/ information collated under section 133(6) of the Income-tax Act, 1961 ('the Act') in respect of contracts between associated enterprise and third parties and on the basis this information

3 Solar Turbines India Pvt. Ltd. obtained under section 133(6) erred in concluding that the Assessee is acting as an agent on behalf of its associated enterprise. Grounds relating to Direct Tax 7. On the facts and circumstances of the case and in law, the learned AO under the directions the Hon'ble DPP erred in considering a without prejudice stand in relation to the disallowance of Rs.4,50,24,747/- on account of 50% of employee cost and administrative selling and distribution expenses without appreciating the fact that the said expenses are incurred by the appellant for its own business. Other Ground 8. On the facts and circumstances of the case, and in law, the learned AO and the learned TPO under the directions of the Hon'ble DRP erred in initiating penalty proceeding under sections 274 read with section 271(1)(c) of the Act and levying interest under section 234A, 234B and 234D of the Act. Relief Relief Appellant craves leave to add to or alter, by deletion, substitution, modification or otherwise, the above grounds of appeal, either before or during the hearing of the learned DRP be deleted. The Appellant prays that the addition made by the learned AO and TPO and upheld by the learned DRP be deleted.

2. Grounds no.1 to 5, are in relation to transfer pricing adjustment of ` 32,35,68,333, on account of international transaction relating to provisions of liaisoning support service / indenting services to the Associate Enterprises (A.E).

servicing of gas turbines of captive power plants. The assessee also provides annual maintenance service and supply of spare parts to the customers. As per audit report filed in Form no.3CEB, the Transfer Pricing Officer found that in the relevant previous year, the assessee has entered into following international transactions with its A.E.

5 Solar Turbines India Pvt. Ltd. charges have been charged to the A.E. He observed, the total contract value agreed upon between the assessee and PWD initially was ` 20,42,68,000 which was subsequently revised by the A.E. to ` 19,57,68,000. He further noted, while submitting the bid to the PWD, the assessee had bifurcated the contract value of ` 19,57,68,000, into two parties viz. A.E’s part of ` 12,49,68,000 and assessee’s part of ` 7,08,00,000. Whereas, the requirement of PWD was for the entire work of supply of gas turbine generating system and their installation for a sum of ` 19,57,68,000. The Assessing Officer commented, whether such bifurcation was agreed to by the PWD for the reason that the total amount payable was as per contract or such bifurcation was separately approved after examining the financial feasibility was not known. He further observed, travel expenditure of ` 2,42,95,102, claimed by the assessee shows exorbitant increase over the preceding year and the same was not commensurate with the increase in number of employees. The travel cost includes a substantial part for travel to Switzerland probably in relation to contract. The Assessing Officer observed, the assessee is engaged in the business of installation, commission, maintenance of turbine, however, the assessee had claimed that the turbines were not supplied by the assessee but are directly purchased by the parties from the A.E. Assessee also claimed that the A.E. does not have any P.E. in India.

6 Solar Turbines India Pvt. Ltd.

The Assessing Officer, therefore, raised an issue, when the entire liaisoning work for the purchase of turbines by the Indian customers from the A.E. was undertaken by the assessee and subsequently, the contract for installation commissioning maintenance of such turbine was done by the assessee how no service charges / commission has been charged from the A.E. in this regard. On the basis of such information received from the Assessing Officer and finding that the assessee had not submitted details pertaining to the transactions with PWD (CWG), the Transfer Pricing Officer called upon the assessee to submit details of transactions entered into by it on its own behalf or on behalf of its A.E. with PWD in relation to Common Wealth Games at Delhi. In addition, the Transfer Pricing Officer also asked the assessee to explain whether the A.E. has any P.E. in India for its sales related activity. If not, then how the A.E. comes in contact with its customers in India for selling the turbines. The assessee was also asked to explain whether it does any liaisoning work in India on behalf of its A.E. for selling turbines in India and if so whether assessee gets any service charges / commission from the A.E. from such work. In reply, it was submitted by the assessee that it is not involved in any liaisoning work on behalf of the A.E. and the A.E. also does not have any P.E. in India. The assessee submitted, the A.E. participates in various exhibition to promote the products of the company to 7 Solar Turbines India Pvt. Ltd. prospective customers in India. The assessee also furnished list of six parties to whom the assessee provided services of installation / commissioning of turbines supplied by the A.E. during the relevant previous year. On the basis of details of the parties submitted by the assessee, the Assessing Officer issued notice under section 133(6) calling for information, the Transfer Pricing Officer also called for information from the Assessing Officer any other proof available with him, he has formed an opinion that the assessee has done liaisoning work with the Government on behalf of its A.E. From the information submitted by the Assessing Officer, he found that the assessee in its submissions dated 31st July 2014, before the Assessing Officer had admitted that the A.E. was not qualified to enter into bid with the PWD (CWG). Thus, the entire bid was entered into by the assessee on its own behalf as well as on behalf of its A.E. but in its own name. Though, ultimately, the turbine was supplied by the A.E. under the contract, however, the assessee had provided support services to the A.E. and also acted like an agent in selling its turbine in India. He also noticed, as per the documents submitted payment for turbine was made by the PWD (CWG) directly to the A.E. on the request of the assessee and the assessee has received only part amount representing installation / commissioning charges which according to the Transfer Pricing Officer proves the fact that the assessee had actually offered

8 Solar Turbines India Pvt. Ltd. support service to the A.E. for marketing for sale of goods in India. On going through the agreement between the assessee and PWD (CWG), the Transfer Pricing Officer noticed that all communication by PWD is with the assessee and not with the A.E. which essentially means that for the supply of turbines to the A.E. to PWD, it was the assessee who was liaisoning with PWD on behalf of the assessee. Referring to some letters written by the assessee to PWD, the Transfer Pricing Officer inferred that the assessee is not only providing support services to its A.E. in terms of marketing and sale of turbines in India but is also providing of necessary services to facilitate payment to A.E. for the turbines supplied by the A.E. at the earliest. He also noted that the assessee on its own volition has revised the bid amount for supply of turbine by reducing it by ` 85 lakh whereas no revision is done on price for which the assessee has to render services of installation, commissioning, etc., which according to the Transfer Pricing Officer strengthens the case that the assessee is acting as an agent of the A.E. and taking decision on behalf of the A.E. Thus, in the process, providing support services to the A.E. Though, it was submitted by the assessee that it does not provide any marketing services for/on behalf of its A.E. in India as the A.E. has appointed various independent sales agents for marketing its product in India for which the A.E. also pays commission in the range between 2.5% and 3%. However, the 9 Solar Turbines India Pvt. Ltd.

Assessing Officer did not accept the claim of the assessee by observing that the claim of the assessee is not verifiable in the absence of any supporting documents submitted before him. The Transfer Pricing Officer also referred to the information obtained from the six parties to whom the A.E. supplied the turbines during the relevant previous year wherein it was allegedly stated by them that no third party broker / agent was involved in transaction of purchase of turbine as well as their installation. He further observed, as per the information obtained under section 133(6) from the purchasers of turbine, it was the assessee’s employee who was liaisoning on behalf of the assessee as well as the A.E. for the finalization of the contract. Thus, on the aforesaid facts, the Transfer Pricing Officer came to the conclusion that the assessee had provided support service for sale, marketing and after sale services on behalf of the A.E. in India for which it should have received indenting, commission or service fees. The Assessing Officer, therefore, called upon the assessee to show cause why the services provided by the assessee in selling its turbine should not be bench marked and why arm's length price should not be determined. Since the assessee has not received any amount from its A.E. in lieu of service rendered. In this context, the Transfer Pricing Officer had also obtained a copy of contract of indenting commission entered into by 10 Solar Turbines India Pvt. Ltd. five other parties wherein the rate of commission charged on the sales executed by them are as under:–

1. Hand Innovation Inc. 22% 2. Mentor Medical Inc. 11.40% 3. Servonex Company 13.25% 4. R.G. Medical Diagnostics 17.50% 5. J.T. Posey Co. Inc. 15%

commission @ 15.83% of the sale value which worked out to ` 32,35,68,333, which was treated as transfer pricing adjustment.

12 Solar Turbines India Pvt. Ltd. work on behalf of the A.E., how the A.E. can sell turbines to potential customers in India. The DRP also observed, the assessee did not file any documentary evidence to support its claim that no support services were provided. The DRP observed from the details submitted by the assessee in respect of earning of income from installation and commissioning work, it was revealed that the assessee did not submit these details pertaining to transactions with PWD (CWG). It was observed, as the assessee did not submit even the basic details called for by the Transfer Pricing Officer, he had to independently make enquiry by calling for information from the six parties to whom the assessee had sold turbines in India. The DRP observed, as per the condition of bid, the A.E. was not qualified to enter into bidding process for the PWD contract. Hence, the entire bid process was entered into and executed by the assessee on its own behalf and in its own name. Therefore, the entire income / revenue should have been received from PWD (CWG) by the assessee. Whereas, a part of the payment has directly gone to the A.E. and only the balance amount was received by the assessee. This, according to the DRP, proves that the assessee had offered support services to the A.E. for marketing and sale of goods in India which is proved from the fact that all communications by PWD is to the assessee and not to the A.E. As far as the claim of the assessee that the A.E. had engaged independent

13 Solar Turbines India Pvt. Ltd. agents for marketing its product, the DRP observed, though, the assessee was specifically asked to submit evidence in support of its claim that the assessee has appointed independent agents and paid commission at the range between 2.5% and 3%, however, no evidence was produced by the assessee. On the contrary, the information obtained from the parties to whom the A.E. had sold turbines reveals that there is no third party broker / agent involved in the transactions of purchase of turbine as well as their installation. Further, the information revealed that it was assessee’s employees who were liaisoning for obtaining the contract of sale of turbine and other ancillary work like installation, after–sale–service, etc. Thus, on the aforesaid basis, the DRP agreed with the Transfer Pricing Officer that the arm's length price of the indenting commission for support services provided by the assessee has to be determined and accordingly confirmed the order of the Transfer Pricing Officer on this issue. On the basis of the directions of the DRP, the Assessing Officer passed the final assessment order which is under challenged in the impugned appeal.

14 Solar Turbines India Pvt. Ltd.

Representative submitted, this business by the A.E. and the assessee is being carried on from the year 2002 and in none of the years any adjustment has been made in relation to provision of marketing services. He submitted, though, the assessee has entered into a number of international transactions with its A.E. as enumerated in Para–5 of the Transfer Pricing Officer, however, in respect of none of these transactions, the price charged by the assessee not found to be within arm’s length. The learned Authorised Representative submitted, though, in the impugned assessment year also, the nature and character of transactions of the A.E. and the assessee remained the same, only because of a contract entered with PWD (CWG), the Department has taken a different view in the impugned assessment year, as regard the alleged marketing service provided by the assessee. The learned Authorised Representative taking us through the contract entered with PWD (CWG) submitted, as per the eligibility criteria fixed in the notice inviting tender, the work of construction of multipurpose air conditioned indoor stadium with required facilities for netball and synthetic athletic track is open for the original equipment manufacturer or from consortium and authorised business partners / authorised dealers of repute for such work. It was submitted, as per the condition imposed in NIT, the participating agency should furnish registration certificate under Delhi Value Added Tax 2004. Further, the 15 Solar Turbines India Pvt. Ltd. parties participating in tender must have experience in completing one work of providing cash based turbine generation system of capacity not less than 2000 KW during the last seven years ending on 31st December 2008. He submitted, the contract with PWD (CWG) clearly demonstrate the work to be performed by the assessee and its A.E. In this context, he referred to the scope of supply as forming part of the contract. He submitted, the contract also enumeration the supply of gas turbine generated package from abroad. In this context, he referred to Page–203 to 209 of the paper book. He submitted, the contract also specified the nature of work to be performed by the assessee and its A.E. and the payment to be made for such work. He submitted, because of the eligibility condition that a bidder having registration under the Delhi VAT Act participating in the bid, the A.E. was not qualified to enter into contract with PWD (CWG) for supply of the gas turbines set. Therefore, the assessee had to bid for the contract as it was having the required eligibility criteria. He submitted, however, from the very beginning the nature and scope of work to be performed by the assessee and the A.E. were clearly identified. He submitted, only because to fulfill the eligibility criteria the assessee entered into contract with PWD (CWG) it cannot be held that the assessee was acting as an agent of the A.E. as far as sale of gas turbines generating set are concern. Learned Authorised

16 Solar Turbines India Pvt. Ltd.

Representative submitted, the Transfer Pricing Officer has no factual basis to conclude that the assessee has rendered support service to the A.E. insofar as sale of gas turbine is concerned. There is also no material before the Transfer Pricing Officer that the assessee had received any money from the A.E., therefore, the income which the assessee could have earned but has not earned cannot be charged to tax under the transfer pricing provisions. He submitted, for applying Chapter–10 arising of income is sin qua non. He submitted, section 92 is not a charging section but a machinery provision. If income does not arise, Chapter–10 will not apply. In this context, he relied upon the following decisions:–

Vanenburg Group B. V. In re [2007] 289 ITR 464 AAR; 1. 2. Dana Corporation (2009) (321 ITR 178) (AAR); M.JafferSaheb (Decd.) v/s CIT, (2014) 361 ITR 25 (AP); 3. 4. Vodafone India Services Pvt. Ltd. v. UOI [2014] 368 ITR 1 (Bom).

17 Solar Turbines India Pvt. Ltd.

1. Maruti Suzuki India Ltd. v/s CIT, 381 ITR 117; 2. Bausch & Lomb Eyecare (India) (P.) Ltd. v/s ACIT 381 ITR 227 3. L'Oreal India (P.) Ltd. v/s DCIT, 49/473 (Trib.)

assessee to its A.E. which needed to be bench marked. He submitted, in a case where services are rendered and parties decided not to charge for it then arm's length price has to be determined as in the case of similar transactions with third parties, the assessee would have charged towards services rendered. In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in Vodafone India Services Pvt. Ltd. (supra).

19 Solar Turbines India Pvt. Ltd. direct sales of gas turbines by the A.E. to the customers in India for bench marking the arm's length price of marketing support services allegedly provided by the assessee to its A.E. At this stage, it needs to be mentioned, as far as the international transactions reported by the assessee with its A.E., the Transfer Pricing Officer has not made any adjustment in respect of them having found the price charged by the assessee to be at arm’s length. As observed earlier by us, the entire basis of transfer pricing adjustment is the contract entered with the PWD (CWG). On a perusal of relevant clauses of contract, a copy of which has been submitted in the paper book, it is noticed that the scope of work as per the NIT is as under:–

“Multipurpose air conditioned indoor stadium with required facilities for netball (competition and training venue) and 400 MT x 8 lane synthetic athletic track with required facilities (training venue) at Tyagraj Sports Complex at Tyagraj Nagar, New Delhi”

participating in the bid. Whereas, the assessee was having registration certificate under the Delhi VAT Act, 2004. Thus, for participating in the bid and obtaining the contract, there was no other option either for the assessee or its A.E. but to submit the bid in assessee’s name, though, it is clearly understood by the contractee and contractor that the OEM of gas turbines is assessee’s A.E. Turbomach SA who has to provide gas turbine generation system. Further, the contract between the assessee and the PWD (CWG) clearly specifies the scope of work to be undertaken by the assessee and its A.E. The payments to be made for such work have also been specified. Further, it is a fact on record, A.E. directly raised invoice on PWD for supply of gas turbines and payments were directly made by PWD to A.E. The contract in clear terms speaks of supply of gas turbines generating system from abroad from the assessee’s A.E. for which payment has been quantified in the contract. Thus, the contract clearly demarcates the work to be performed by the assessee and payment to be made for such work and the supplies to be made by the A.E. and payments to be made for such supply. There is nothing on record to suggest that the assessee has provided any services to its A.E. for sale of its gas based turbines either to PWD and other customers in India. Moreover, the NIT of PWD (CWG) required participation of an original equipment manufacturer which the assessee is certainly not. There is no dispute to the fact that from the 21 Solar Turbines India Pvt. Ltd. earlier years also, the A.E. is supplying gas based turbine generating system to customers in India, whereas, the assessee is providing services relating to installation, commissioning, annual maintenance as well as supply of spare parts. It is also not disputed that the payments relating to gas based turbine generating systems were made to the A.E. directly by the contractees. That being the case, in the absence of any material to show that the assessee had provided any marketing services to its A.E. in relation to supply of gas turbine generating system, income relating to indenting commission cannot be computed notionally alleging provision of such services. It is further more necessary to observe that on the basis of contract with PWD (CWG), the Transfer Pricing Officer has computed commission on gas turbines sold by the A.E. to other customers in India on a presumptive basis. Admittedly, in case of sales made by the A.E. to other parties in India, the assessee is no way involved in the sales effected as the concerned parties have directly entered into contract / negotiation with Turbomach SA for supply of gas based turbines. In this context, a reference can be made to the replies submitted by the concerned parties in compliance to notices issued under section 133(6) by the Transfer Pricing Officer. Though, relying upon these replies the Transfer Pricing Officer had concluded that assessee had provided marketing support services to its A.E. as regards sale of turbine to 22 Solar Turbines India Pvt. Ltd.

Indian customers, however, a careful reading of the replies proves otherwise. On a perusal of the aforesaid replies given by the parties in India to whom the A.E. had sold turbines, copies of which are placed in Volume–V of the paper book, it is evident all of them have categorically stated that they came to know about Turbomach SA through various OEM in Europe and they had negotiated directly with Turbomach SA for purchase of gas turbine which continued from earlier years and the assessee was no way involved in such transaction. Further, the concerned parties also stated, as far as assessee is concerned, they have independent contract for installation, maintenance of gas turbines and supply of balance plant. We have noted, the Transfer Pricing Officer has selectively used the information obtained from the parties under section 133(6). The Transfer Pricing Officer instead of bringing on record any substantive evidence to establish the fact that the assessee had rendered any service in respect of sale of gas turbines by the A.E. to other parties in India has simply alleged that assessee has failed to prove the fact that it had not provided and support services to its A.E. in relation to sale of turbines. When from the initial stage of the proceeding assessee had been denying that it had not provided any such services to A.E., the Departmental Authorities cannot insist upon the assessee to prove the negative. Therefore, when the Transfer Pricing Officer accepts the fact

23 Solar Turbines India Pvt. Ltd. that the international transactions entered into by the assessee as reported in Form no.3CEB are at arm’s length, he cannot bench mark arm's length price of the indenting commission alleged to have been received by the assessee for providing marketing support service to the A.E. notionally when there is no evidence to come to such a conclusion that assessee in fact has rendered any such services to A.E. That being the case, merely on presumption and surmises, the transfer pricing adjustment cannot be made unless there are concrete evidence before the Departmental Authorities to establish fact that the assessee has rendered marketing support services to the A.E. in relation to sale of gas turbines to customers in India. This view of our is fortified further from the fact that, though, nature and character of the business of the assessee and its A.E. remained the same over the years, however, in no other assessment year any transfer pricing adjustment on account of provision of marketing support services to A.E. has been made. This is evident from the order passed by the Transfer Pricing Officer under section 92CA of the Act for A.Y. 2012– 13. Though, each assessment year is independent and principle of res judicata generally do not apply to income tax proceeding, however, rule of consistency cannot be ignored if there is no material difference in facts. Therefore, there being no basis for concluding that the assessee has provided any marketing support services to A.E. or has 24 Solar Turbines India Pvt. Ltd. received any commission from the A.E. for providing such marketing support services, the transfer pricing adjustment made is hereby deleted. Grounds no.1 to 5 are allowed. Since, we have held that there is no factual basis for determining the arm's length price of indenting commission for provision of marketing support services to A.E., it is not necessary to dwell upon the decisions relied upon by the parties.

believe that a company doing business in India without any physical presence would be able to sell its products which requires a lot of marketing effort, advertisement, exhibition, personal negotiation, etc. The Assessing Officer observed, the contract entered with the PWD (CGW) shows that the assessee and its A.E. are doing business in co– ordinate manner, therefore, there is not much difference between the assessee and its A.E. as far as getting business or compliance. Hence, role of the assessee in sale process or contract for getting business cannot be ruled out. The Assessing Officer observed, as far as prospective clients are concerned, they do not see any difference in assessee and A.Es. For them, it is a composite contract as pre–sale and post sale services is given by the Group company and they have a physical presence in India through the assessee. The assessee is engaged in promoting Group Company. The Assessing Officer observed, the assessee being a captive service provider, there is no business sense to participate in exhibition or other business activities. The Assessing Officer observed, assessee is maintaining sizable number of employees and made huge expenditure which indicates that it provides other miscellaneous services to its A.E. in identifying potential clients, co–ordination with A.E., marketing negotiation, presentation to post sales services. The assessee has also incurred huge amount of expenditure on account of travelling and conveyance

26 Solar Turbines India Pvt. Ltd. which includes foreign travel of the employees of the assessee. He, therefore, ultimately concluded that the expenditure debited in assessee’s books of account are not incurred wholly or exclusively for the purpose of assessee’s business and, accordingly, disallowed 50% out of the total expenditure claimed on protective basis. The assessee objected to the aforesaid protective disallowance before the DRP.

“7.3 The DRP has gone through the entire material on record and is of the view that for the protective addition made in the hands of the assessee company, there has to be a substantive assessment of the same amount in the hands of other entity. In view of the fact that in the computation of total income, the amount of Rs. 4,50,24,747/- has not been added back by the AO, it appears that the AO is of the view that the amount of Rs. 4,50,24,747/- is telescoped in the TP adjustment of Rs. 32,35,68,333/-. 7.4 Thus, the DRP directs the AO to remove the protective addition from the draft /assessment order and take a without prejudice stand on the addition of Rs. 4,50,24,747/-. Further, the draft order should clearly state that this addition of Rs. 4,50,24,747/- is telescoped in the addition made on account of TP adjustment amounting to Rs. 32,35,68,333/-. The AO is directly to modify the draft assessment order, accordingly. Since, the DRP has confirmed the addition of Rs.32,35,68,333/- made on account of TP adjustment, no detailed comments are being offered on the without prejudice of Rs.4,50,24,747 proposed in the draft assessment order.”

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increased by only 1.72% of the total turnover compared to previous assessment year and such increase was mainly on account of increase in number of employees and staff training. He submitted, since these expenditures were for the purpose of assessee’s business they are deductible.

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Officer to clearly state whether addition ` 4,50,24,747 is telescoped in the addition made on account of transfer pricing adjustment amounting to ` 32,35,68,333. However, on a perusal of the final assessment order passed in pursuance to the direction of the DRP, it is noticed that neither the Assessing Officer has taken a without prejudice stand on the addition of ` 4,50,24,747, nor has made any observations to the effect that the said amount has been telescoped to the addition made on account of transfer pricing adjustment. On the contrary, the Assessing Officer has simply re–moved the protective addition from the assessment order and has not made any addition in the computation of total income. That being the case, in our considered opinion, there is no necessity for adjudication of this issue as no addition has been made by the Assessing Officer independently nor there has been any statement by the Assessing Officer that the said amount has been telescoped into the addition made on account of transfer pricing adjustment. Suffice to say, the observations made in the draft assessment order clearly indicate that the disallowance made on protective basis out of the expenditure claimed towards employee cost, selling, administrative and distribution expenses was solely relying upon the fact that the assessee has entered into contract with PWD (CWG) on behalf of its A.E. and also on the basis of information obtained 133(6) from other customers of the A.E. and assessee in 30 Solar Turbines India Pvt. Ltd.

India. However, while deciding the grounds raised by the assessee on the transfer pricing adjustment, we have held that there is no concrete evidence before the Departmental Authorities nor any material has been brought on record to establish the fact that the assessee has been providing marketing support services to its A.E. as far as sale of turbines by the A.E. is concerned. On the contrary, the information obtained under section 133(6) from the parties in India to whom the A.E. had sold gas turbines clearly reveal that all these customers have unequivocally stated that they have directly negotiated with the A.E. as far as purchase of gas turbines are concerned and they have independently entered into contract with the assessee for installation, maintenance and supply of balance parts. Further, the contention of the assessee that its turnover during the impugned assessment year has increased by 40% and the head count of employees have increased from 16 to 23 as well as payments of provident fund for the first time, payment of participation fee, travelling fee incurred for attending conference, training of employees, etc., have not been disproved by bringing cogent material on record. In the aforesaid view of the matter, the ad–hoc disallowance of 50% out of the expenditure claimed on protective basis, in our view, is not called for. Ground no.7 is disposed off accordingly.

31 Solar Turbines India Pvt. Ltd.