Lanco Infratech Ltd., Hyderabad, Hyderabad v. ACIT, Circle-16(1), Hyderabad, Hyderabad

ITA 221/HYD/2017 | 2012-2013
Pronouncement Date: 30-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 22122514 RSA 2017
Assessee PAN AAACL3449H
Bench Hyderabad
Appeal Number ITA 221/HYD/2017
Duration Of Justice 9 month(s) 19 day(s)
Appellant Lanco Infratech Ltd., Hyderabad, Hyderabad
Respondent ACIT, Circle-16(1), Hyderabad, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 30-11-2017
Assessment Year 2012-2013
Appeal Filed On 10-02-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SMT P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN ACCOUNTANT MEMBER ITA NO. 221/HYD/2017 ASSESSMENT YEAR: 2012-13 LANCO INFRATECH LTD. HYDERABAD. PAN AAACL 3449H VS. ASST. COMMISSIONER OF INCOME-TAX CIRCLE 16(1) HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SMT. PALLAVI AGARWA DATE OF HEARING 17-10-2017 DATE OF PRONOUNCEMENT -11-2017 O R D E R PER S. RIFAUR RAHMAN A.M.: 2. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED U/S 143(3) R.W.S. 92CA AND 144C(13) OF THE I NCOME TAX ACT 1961 (IN SHORT ACT) DATED 15/12/2016 RELATING TO AY 2012-13. 3. BRIEF FACTS OF THE CASE ARE ASSESSEE COMPANY F ILED ITS ORIGINAL RETURN OF INCOME FOR THE AY 2012-13 ON 26/11/2012 A DMITTING TOTAL INCOME AT RS. 26 16 59 530 AND BOOK PROFIT U/S 115J B AT RS. 106 26 37 956/-. THEREAFTER THE ASSESSEE COMPANY F ILED REVISED RETURN OF INCOME ON 04/11/2013 ADMITTING TOTAL INCO ME AT RS. 25 73 74 270/- AND BOOK PROFIT U/S 115JB AT RS. 105 93 83 227/-. IN THE SCRUTINY PROCEEDINGS THE TRANSACTIONS WERE REF ERRED TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA(3) OF THE A CT FOR COMPUTATION OF ARMS LENGTH PRICE WHO HAS PROPOSED ADJUSTMENTS IN RESPECT OF 2 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. ASSESSEES INTERNATIONAL TRANSACTIONS FOR THE YEAR UNDER CONSIDERATION AS UNDER: TRANSACTION ADJUSTMENT (RS.) INTEREST RECEIVED ON LOANS 1 29 54 309 CORPORATE GUARANTEE 90 03 54 380 INTEREST ON RECEIVABLES 131 12 22 228 WORK CONTRACT EXPENSES 195 72 44 551 TOTAL 418 17 75 468 2.1 ASSESSE HAD FILED OBJECTIONS AGAINST THE TP ORD ER BEFORE THE AO HOWEVER AO FINALIZED THE DRAFT ORDER BY INCORP ORATING THE ADJUSTMENTS PROPOSED BY TPO. ASSESSEE PREFERRED OBJ ECTIONS BEFORE THE DRP AND THE DRP VIDE THEIR ORDER DATED 23/11/20 16 UPHELD THE ALP DETERMINED BY THE TPOI ON ALL THE TRANSFER PRIC ING ISSUES. 3. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. TRANSFER PRICING ISSUES 4. GROUND NO. 7A TO 7D IS RELATING TO TRANSFER PRIC ING ADJUSTMENT OF RS. 1 29 54 309/-. 4.1 BEFORE THE TPO THE ASSESSEE STATED THAT CUP WA S CONSIDERED AS THE MOST APPROPRIATE METHOD FOR THE PURPOSE OF D ETERMINING THE ARMS LENGTH CONSIDERING THE NATURE OF TRANSACTION OF LOANS PROVIDED TO LANCO INTERNATIONAL PTE LTD. SINGAPORE BECAUSE THE PRIME LENDING RATE (PLR) OF THE SINGAPORE COMMERCIAL BANK IS A GOOD EXTERNAL COMPARABLE FOR THE LOANS ADVANCED TO ITS A E INCORPORATED AND FUNCTIONING IN SINGAPORE. IT WAS FURTHER SUBMIT TED THAT EVEN AS PER THE RBI GUIDELINES AND RECOMMENDATIONS THE SIN GAPORE PLR IS APPROPRIATELY USED AS THE BENCHMARK RATE IN THIS TR ANSACTION. FURTHER IT WAS SUBMITTED THAT THE ASSESSEE HAD CHARGED INTE REST @ LIBOR + 5.25% FROM ITS AE LANCO RESOURCES INTERNATIONAL PTE LTD. IT WAS SUBMITTED THAT IN THE CASE OF INTEREST RECEIVED ON LOAN PROVIDED SINGAPORE CUP WAS CONSIDERED AS THE MOST APPROPRIA TE METHOD FOR THE PURPOSES OF DETERMINING THE ARMS LENGTH CONSID ERING NATURE OF 3 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. THE INTERNATIONAL TRANSACTION AND THE AVERAGE SINGA PORE PLR REFLECTED IN ITS ANALYSIS IS 5.38% WHEREAS LANCO INFRATECH LT D. (LITL) IS RECEIVING A GREATER INTEREST RATE FROM ITS AE THUS CONSIDERED TO ACCEPT IT AS THE ALP OF THIS TRANSACTION. 4.2 REJECTING THE SUBMISSIONS OF THE ASSESSEE THE TPO ASKED THE ASSESSEE AS TO WHY INTEREST @ 14.75 SHOULD NOT BE C HARGED ON THE ADVANCES PAID. THERE WAS NO REPLY FROM THE ASSESSEE . THE TPO THUS HELD THAT UNDER ARMS LENGTH SITUATION HOW MU CH INTEREST COULD BE EARNED IS TO BE SEEN AND AS A HYPOTHETICAL CUP W OULD BE WHERE THE INDAIN ENTITY INVESTS IN BANK DEPOSITS STOCKS MUTUAL FUNDS OR REAL ESTATE THE CORRESPONDING RETURN WOULD STILL BE THE EFFECTIVE INDIAN INTEREST RATE. THUS THE TPO ADOPTED 14.75% PLR WHI CH WAS PREVAILED DURING FY 2011-12 IN INDIA AS THE ARMS LENGTH INTEREST. ACCORDINGLY HE COMPUTED THE INTEREST AS UNDER: AVERAGE LOAN RS. 14 62 89 580 INTEREST @ 14.75% ON RS.146289580 RS. 2 15 77 713 LESS: INTEREST PAID RS. 86 23 404 SHORTFALL BEING THE ADJUSTMENT RS. 1 29 54 309 =============== 4.3 AGAINST THE ACTION OF THE TPO THE ASSESSEE RAI SED OBJECTIONS BEFORE THE DRP THAT THE TPO ERRED IN DISREGARDING T HE BENCHMARKING ANALYSIS CONDUCTED BY THE ASSESSEE TO SUBSTANTIATE THE ARMS LENGTH NATURE OF LOAN TRANSACTIONS AND IN ADOPTING AN ARBI TRARY APPROACH TO DETERMINE THE ARMS LENGTH INTEREST RATES. FURTHER THE ASSESSEE OBJECTED THAT THE TPO ERRED BY CONSIDERING DOMESTIC BANK RATE IN ORDER TO DETERMINE ARMS LENGTH INTEREST RATE FOR A FOREIGN CURRENCY DENOMINATED LOANS AND THE APPROACH OF THE TPO IS NO T IN ACCORDANCE WITH THE ESTABLISHED COMMERCIAL PRINCIPLES. 4.4 THE DRP UPHELD THE ACTION OF THE TPO BY OBSERVI NG THAT IN THE ABSENCE OF JUSTIFICATION FOR NOT RESPONDING TO THE QUERY OF THE TPO AND ALSO NOT PROVIDING THE RELEVANT INFORMATION AND FACTS WE ARE 4 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. CONSTRAINED TO UPHOLD THE ALP DETERMINED ON THE SAI D TRANSACTION BY ADOPTING INTEREST RATE AT 14.75%. 4.5 BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS GIVEN LOAN OUTSIDE INDIA IN FOREIGN CURRENCY I. E. IN SINGAPORE AND PLR OF SINGAPORE SHOULD BE CHARGED AS CUP INSTEAD O F INDIAN MARKET RATE. HE RELIED ON THE FOLLOWING DECISIONS: 1. LANCO INFRATECH LTD. VS. DCIT AY 2011-12 ITA N O. 450/HYD/2016 (ASSESSEES OWN CASE) 2. CIT VS. COTTON NATURALS INDIA PVT. LTD. [2015] 276 CTR 445 (DEL.) 3. EKL APPLIANCES DELHI HIGH COURT IN ITA NO. 1068 /2011. 4.6 LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF DRP. 4.7 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IN ASSESSEES OWN CASE FOR AY 2011-012 ( SUPRA) THE COORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS UNDER : 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE DETAILS AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT ASSESSEE HAS ADVAN CED AMOUNTS IN FOREIGN CURRENCY. THEREFORE FOLLOWING PRINCIPLES LAID DOWN BY THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA AUTOCOMP SYSTEMS LTD. IN ITA NO.132 0 OF 2012 THE CLAIM OF ASSESSEE TO ADOPT SINGAPORE PLR AS STATED BEFORE THE TPO AND DR P IS REASONABLE AND DESERVES TO BE ACCEPTED. FURTHER IT IS ALSO AN ESTABLISHED LAW THAT TPO/DRP CANNOT ADOPT THE INTEREST RATE PREVAILING IN INDIAN RUPEES FOR INDIA N LOANS TO COMPARE IT FOR THE LOANS ADVANCED IN FOREIGN CURRENCY. EITHER LIBOR OR EURIB OR OR IN THIS CASE SINGAPORE PLR ARE TO BE CONSIDERED. FURTHER THE SAID ISSUE HAS B EEN SPECIFICALLY CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF COTTON NATU RALS INDIA PVT. LTD WITH SPECIFIC REFERENCE TO THE CASE OF LOGIX MICROSYSTEM PRIVATE LIMITED RELIED ON BY DRP IN THEIR ORDER. THE FINDING OF HON'BLE HIGH COURT WITH RESPE CT TO THE SAME IS SUMMARISED AS BELOW TRANSFER PRICING DETERMINATION IS NOT PRIMARILY UN DERTAKEN TO RE-WRITE THE CHARACTER AND NATURE OF THE TRANSACTION; CHAPTER X AND TRANSFER PRICING RULES DO NOT PERMIT THE REVENUE AUTHORITIES TO STEP INTO THE SHOES OF THE ASSESSEE AND DECIDE WHETHER O R NOT A TRANSACTION SHOULD HAVE BEEN ENTERED. IT IS FOR THE ASSESSED TO TAKE COMMER CIAL DECISIONS AND DECIDE HOW TO CONDUCT AND CARRYON ITS BUSINESS. ACTUAL BUSINESS TRANSACTIONS THAT ARE LEGITIMATE C ANNOT BE RESTRUCTURED. 5 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. THE TRANSACTION OF LENDING OF MONEY BY THE RESPOND ENT ASSESSEE TO THE SUBSIDIARY SHOULD NOT BE SEEN IN ISOLATION BUT ALSO FOR THE P URPOSE OF MAXIMIZING RETURNS PROPELLING GROWTH AND EXPANDING MARKET PRESENCE. THIS RATIO AND RATIONALE WHEN APPLIED TO THE FACTS OF THE PRESENT CASE WOULD MEA N THAT THE TRANSFER PRICING DETERMINATION WOULD DECIDE WHAT AN INDEPENDENT DIST RIBUTOR AND MARKETER ON THE SAME CONTRACTUAL TERMS AND HAVING THE SAME RELATION SHIP WOULD HAVE EARNED/PAID AS INTEREST ON THE LOAN IN QUESTION. WHAT AN INDEPENDE NT PARTY WOULD HAVE PAID UNDER THE SAME OR IDENTICAL CIRCUMSTANCES WOULD BE THE AR M'S LENGTH PRICE OR RATE OF INTEREST. WHAT THE ASSESSED WOULD HAVE EARNED IN CASE HE WOUL D HAVE ENTERED INTO OR GONE AHEAD WITH A DIFFERENT TRANSACTION SAY WITH A PART Y IN INDIA IS NOT THE CRITERIA. WHAT IS PERMITTED AND MADE SUBJECT MATTER OF THE ARM'S LENG TH DETERMINATION IS THE QUESTION OF RATE OF INTEREST AND NOT RE-CLASSIFICATION OR SU BSTITUTION OF THE TRANSACTION. 5.1. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOW N BY THE CO-ORDINATE BENCHES AS RELIED ON BY THE LD. COUNSEL AND ALSO BY VARIOUS JU DICIAL PRONOUNCEMENTS OF THE HIGH COURTS RELIED UPON WE ARE OF THE OPINION THAT THER E IS NO NEED FOR ANY ADJUSTMENT ON THIS ACCOUNT AS ASSESSEE HAS ALREADY RECEIVED 6.37 % INTEREST WHICH IS MORE THAN THE SINGAPORE PRIME LENDING RATE OF 5.38%. IN VIEW OF T HAT WE DELETE THE ADDITION MADE BY THE AO/TPO/ DRP. ASSESSEES GROUNDS ON THIS ARE ALL OWED. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF AY 2011-12 FOLLOWING THE DECISION OF THE COORDINATE B ENCH IN THAT YEAR WE DELETE THE ADDITION MADE ON THIS COUNT. AT THE S AME TIME THE DRP HAS CONFIRMED THE ADDITION SIMPLY BECAUSE THE ASSES SEE HAS NOT SUBMITTED INFORMATION BEFORE AO. IT WAS REPRESENTED BEFORE DRP DRP HAS TO FIND OUT THE REAL TRANSACTION & APPROPRI ATE ALP ADJUSTMENT BASED ON THE INFORMATION AVAILABLE AT T HEIR DISPOSAL. IN CASE IT IS NOT THEN THEY CAN CALL FOR REMAND REPO RT FROM TPO. IT IS NOT PROPER TO CONFIRM THE ALP ADJUSTMENT WITHOUT PROPER VERIFICATION. IN THE SAME BREATH WE ALSO CONDEMN THE ACTION OF THE ASSESSEE IN NOT PROPERLY SUBMITTING THE REQUIRED INFORMATION TO LOW ER AUTHORITIES. IN CASE OF INABILITY TO SUBMIT THE INFORMATION BEFORE LOWER AUTHORITIES THEY COULD HAVE RECORDED THE SAME BEFORE THE AUTHOR ITIES INSTEAD OF MAINTAINING SILENCE. THIS KIND OF BEHAVIOR LEADS TO UNNECESSARY WASTING OF JUDICIAL TIME AT THE DIFFERENT APPELLATE AUTHORITIES. ACCORDINGLY GROUND NO. 7 IS ALLOWED. 5. GROUND NO. 8A TO 8J IS RELATING TO TRANSFER PRIC ING ADJUSTMENT OF RS. 90 03 54 380/- TOWARDS CORPORATE GUARANTEE. 6 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. 5.1 DURING FY 2010-11 THE ASSESSEE PROVIDED CORPOR ATE GUARANTEES TO INDEPENDENT FINANCIAL INSTITUTIONS FO R THE LOAN AND HEDGING FACILITIES PROVIDED BY THE INDEPENDENT FINA NCIAL INSTITUTIONS TO ASSESSEES 100% START-UP SUBSIDIARIES NAMELY LRIPL LRAPL AND LIPL THE DETAILS OF WHICH ARE AS UNDER: NAME OF THE AE NAME OF THE FINANCIAL INSTITUTION GUARANTEE VALUE (USD) EFFECTIVE GUARANTEE VALUE (INR) AS ON MARCH 31 2012 NATURE LRIPL ICICI BANK LTD. SINGAPORE BRANCH USD 137.50 MN. RS. 63945.63 LAKHS (GUARANTEE VALUE RS. 70 340.18 LAKHS) LOAN FACILITY LRAPL ICICI BANK LTD. SINGAPORE BRANCH USD 742.50 MN. RS. 3 45 306.38 LAKHS (GUARANTEE VALUE RS. 3 79 837.01 LAKHS) LOAN FACILITY LRAPL ICICI BANK LTD. SINGAPORE BRANCH USD 55 MN RS. NIL HEDGE LINPL BARCLAYS BANK PLC LONDON USD 40 MN RS. NIL HEDGE LINPL DBS BANK LTD. USD 15 MN RS. NIL HEDGE LINPL STANDARD CHARTERED BANK LONDON USD 35 MN RS. NIL HEDGE ASSESSEE SUBMITTED THAT THESE GUARANTEES WERE PROVI DED TO ENABLE THEIR START UP SUBSIDIARIES TO OBTAIN THE REQUISIT E HEDGES AND NOT TO OBTAIN ANY BENEFICIAL TERMS IT PROVIDED THE CORPOR ATE GUARANTEES TO INDEPENDENT FINANCIAL INSTITUTIONS ON A FREE OF CH ARGE BASIS TO ITS AES. ACCORDING TO ASSESSEE AS THERE IS NO CHARGE 7 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. RECEIVED/RECEIVABLE ON THESE TRANSACTIONS THERE IS NO BENCHMARKING REQUIRED U/S 92(1) OF THE IT ACT. 5.2 WHEN THE TPO ASKED THE ASSESSEE AS TO WHY CORPO RATE GUARANTEE FEE SHOULD NOT BE CHARGED AS PER SBI GUID ELINES THE ASSESSEE SUBMITTED THAT A BANKER CANNOT BE CONSIDER ED FOR THE PURPOSE OF CUP SINCE IT IS A QUOTATION AND NOT AN A CTUAL UNCONTROLLED TRANSACTION. FURTHER IT WAS SUBMITTED THAT BANK GUARANTEES ARE NOT COMPARABLE WITH CORPORATE GUARANTEES SINCE SUCH COR PORATE GUARANTEES ARE ISSUED BASED UPON THE BUSINESS NEEDS AND NOT BASED ON RISK ASSESSMENT OR UNDERLYING ASSET WHICH GENERA LLY THE BANKS ASK FOR. THEREFORE CORPORATE GUARANTEE FEE CANNOT BE C HARGED AS PER SBI GUIDELINES. 5.3 REJECTING THE SUBMISSIONS OF THE ASSESSEE THE TPO OBSERVED THAT THE PROVISION OF CORPORATE GUARANTEE IS AN INT ERNATIONAL TRANSACTION FOR WHICH ARMS LENGTH PRICE HAS TO BE DETERMINED AS PER THE PROVISIONS OF SECTION 92 OF THE IT ACT AND THE COMMERCIAL CONSIDERATIONS ADVANCED BY THE ASSESSEE CANNOT BE C ONSIDERED FOR DETERMINING THE ALP OF THE TRANSACTIONS. ACCORDINGL Y THE TPO HAD COLLECTED INFORMATION FROM VARIOUS WEBSITES OF THE BANKS REGARDING HOW THE CORPORATE GUARANTEE FEE IS COMPUTED. THE TP O HAD ALSO REFERRED TO THE GOVERNMENT POLICY OF THE MINISTRY O F FINANCE GOVT. OF INDIA SEPTEMBER 2010. IT WAS THUS GATHERED THAT TH E BANKS CHARGE CORPORATE GUARANTEE UPFRONT AT THE TIME OF ISSUE OF THE GUARANTEE ITSELF. HE OPINED THAT IN CASE OF GUARANTEES COVERI NG MORE THAN ONE FINANCIAL YEAR THE FEE IS CHARGED BY THE BANKS AT T HE BEGINNING OF THE FINANCIAL YEAR ON THE OUTSTANDING AMOUNT. THEREFORE THE TPO HAD ADOPTED THE SAME METHOD OF COMPUTATION AND ACCORDIN GLY COMPUTED THE ALP OF CORPORATE GUARANTEE FEE AS UNDER: NAME OF THE AE EFFECTIVE GUARANTEE VALUE (INR) ARMS LENGTH GUARANTEE FEE IN % ARMS LENGTH GUARANTEE FEE FEE CHARGED ADJUSTMENT LRIPL 7034018000 2% 140680360 0 140680360 LRAPL 37983701000 2% 759674020 0 759674020 8 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. TOTAL 90 03 54 380 THUS THE ARMS LENGTH PRICE OF THE CORPORATE GUARAN TEE FEE WAS DETERMINED AT RS. 90 03 54 380/- AND THE SHORTFALL OF RS. 90 03 54 380/- WAS TREATED AS ADJUSTMENT U/S 92CA O F THE IT ACT BY THE TPO. 5.4 AGGRIEVED THE ASSESSEE RAISED OBJECTIONS BEFOR E THE DRP AS UNDER: THE LD. TPO ERRED IN NOT APPRECIATING THE FACT TH AT CORPORATE GUARANTEE WAS GIVEN BY ASSESSEE FOR ITS OWN COMMERC IAL EXPEDIENCY AND FOR THE OVERALL BENEFIT OF THE ASSES SEE. IT WAS THE ASSESSEES OBLIGATION TO TAKE THE LOAN AND PAY FOR THE ACQUISITION OF THE ASSET AS THE ASSESSEE WAS THE SU CCESSFUL BIDDER INSTEAD IT CHOSE TO INCORPORATE THE SPVS (NE WLY CREATED 100% SUBSIDIARIES) TO AVAIL THE LOANS BY PROVIDING CORPORATE GUARANTEES TO AVAIL THE LOAN FOR ACQUISITION OF THE ASSET. THE CORPORATE GUARANTEE WAS PROVIDED BECAUSE OF PARENTA L OBLIGATION AND NOT FOR ANY OTHER REASON. THE LD. TPO OUGHT TO HAVE APPRECIATED THAT THE AE HAS NOT DERIVED ANY BENEFIT BY RECEIVING THE GUARANTEE GIVE N BY THE ASSESSEE EXCEPT GETTING A LOAN. HENCE NO ALP ADJUS TMENT IS WARRANTED IN THIS REGARD. THE ONLY PARTY TO DERIVE A QUANTIFIABLE BENEFIT WAS THE ASSESSEE. THE LD. TPO ERRED IN CALCULATING THE ALP OF THE C ORPORATE GUARANTEE FEE USING 'CUP' AS THE MOST APPROPRIATE M ETHOD AND BY APPLYING THE RATES OF SBI WITHOUT ANY BASIS AND WITHOUT COMPLYING WITH THE PROCEDURE LAID DOWN FOR COMPUTAT ION OF ARM'S LENGTH PRICE AS GIVEN IN THE PROVISIONS OF SE CTION 92C OF THE ACT. WITHOUT PREJUDICE TO ABOVE THE LD. TPO ERRED IN CALCULATING THE GUARANTEE FEE ON THE ENTIRE AMOUNT OF THE GUARA NTEE INSTEAD OF RESTRICTING THE AMOUNT TO THE EXTENT OF THE WITH DRAWAL OF LOAN BY THE AE AGAINST GUARANTEE. 5.5 THE DRP UPHELD THE ACTION OF THE TPO. 5.6 THE ASSESSEE IS IN APPEAL BEFORE US. 5.7 LD. AR OF THE ASSESSEE SUBMITTED THAT CORPORATE GUARANTEE DO NOT FALL WITHIN THE SCOPE OF THE TERM INTERNATIONA L TRANSACTION EVEN 9 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. AFTER INSERTION OF EXPLANATION TO SECTION. HE SUBMI TTED THAT CORPORATE GUARANTEE TRANSACTION IS A SHAREHOLDER ACTIVITY AND IT IS OUTSIDE THE PURVIEW OF INTERNATIONAL TRANSACTION. WITHOUT PREJ UDICE TO THE ABOVE THE LD. AR SUBMITTED THAT THE TPO OUGHT TO HAVE CHA RGED FEES AT A REASONABLE PERCENTAGE AT 0.27% AS HELD IN ASSESSEE S OWN CASE BEFORE DRP. HE RELIED ON THE FOLLOWING CASES: 1. DR. REDDYS LABORATORIES VS. ACIT ITA NO. 294/H YD/2014 & ITA NO. 458/HYD/2015 2. SIRO CLINPHARM PVT LTD. VS. DCIT ITA NO. 2876/M UM/2014 3. BHARTI AIRTEL LTD. VS. ADDL. CIT ITA NO. 5816/D EL/2012 4. ASIAN PAINTS LTD. VS. ACIT ITA NO. 7801/MUM/201 0/ [2014] 41 TAXMANN.COM 71 (MUM. 5. LANCO INFRATECH LTD. VS. DCIT AY 2011-12 IN ITA NO. 450/HYD/2016 (ASSESSEES OWN CASE) 5.8 LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF DRP AND SUBMITTED THAT IN EARLIER AY IT WAS ADJUDICATED BY THIS BENCH AS INTERNATIONAL TRANSACTION. 5.9 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. WE FIND THAT IN ASSESSEES OWN CASE FOR AY 2011-12 (SUPRA) WHILE ADJUDICATING SIMILAR ISSUE THE COOR DINATE BENCH HAS HELD AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE DOCUMENTS PLACED ON RECORD. THERE IS A DIFFERENCE OF OPINION AS FAR AS IN THE CORPORATE GUARANTEE FEE TO BE CONSIDERED AS INTERNATIONAL TRANSACTION. HOWEVER T HE HYDERABAD BENCHES OF ITAT IS CONSISTENTLY FOLLOWING THE PRINCIPLE THAT CORPORATE GUARANTEE IS TO BE CONSIDERED FOR THE PURPOSE OF TRANSFER PRICING ADJUSTMENTS AS THE TRAN SACTION OF PROVIDING CORPORATE GUARANTEE IS CONSIDERED AS INTERNATIONAL TRANSACTI ON. TO BE CONSISTENT WITH THE OPINION ALREADY TAKEN IN EARLIER DECISIONS LD. COU NSEL WAS GIVEN AN OPTION TO PRESS OR NOT TO PRESS THE ISSUE ON THIS. LD. COUNSEL HOWEVER SUBMITTED THAT IF REASONABLE RATE OF 0.27% CONFIRMED BY ASIAN PAINTS LTD. VS. CIT (ITA NO. 7801/MUM/2010) WAS ADOPTED ASSESSEE HAS NO OBJECTION TO WITHDRAW THE ABOVE CON TENTION. CONSIDERING THAT THE CORPORATE GUARANTEE PROVIDED BY THE COMPANY WILL FA LL WITHIN THE SCOPE OF THE TERM INTERNATIONAL TRANSACTION AFTER THE INSERTION OF EXPLANATION TO SECTION 92B BY FINANCE ACT WE REJECT THE CONTENTION OF ASSESSEE ON THIS I SSUE. HOWEVER CONSIDERING THE CO- ORDINATE BENCH DECISION GIVEN IN THE CASE OF ASIAN PAINTS LTD. VS. CIT (ITA NO. 7801/MUM/2010) (SUPRA) WE HOWEVER DIRECT THE AO/TP O TO CONSIDER ONLY 0.27% AS THE GUARANTEE COMMISSION ON THE AMOUNT INVOLVED. TH E CONTENTION THAT CORPORATE GUARANTEE FEE TO BE CONSIDERED PROPORTIONATELY WITH THE PERIOD IT AVAILED CANNOT BE 10 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. ACCEPTED AS GUARANTEE FEE IS UPFRONT AND ONE TIME F EE PAID AT THE BEGINNING AND THEREFORE ON THE CORPORATE GUARANTEES PROVIDED DUR ING THE YEAR THE RATE IS TO BE APPLIED. HOWEVER IF ANY OF THE CORPORATE GUARANTEE S ARE PROVIDED IN EARLIER YEAR THEY MAY NOT BE SUBJECTED TO TRANSFER PRICING DURING THE YEAR UNDER CONSIDERATION. ASSESSEE HAS STATED THAT SOME OF THE GUARANTEES WERE WITHDRA WN DURING THE YEAR. IF THE GUARANTEES ARE GIVEN DURING THE YEAR AND ALSO WITHD RAWN DURING THE YEAR AO IS DIRECTED TO CONSIDER ACCORDINGLY. SUBJECT TO QUANTI FICATION OF CORPORATE GUARANTEE PROVIDED BY ASSESSEE DURING THE YEAR WE DIRECT THE AO/TPO TO FIX THE FEES AT 0.27% ON THAT AMOUNT. WITH THESE DIRECTIONS THE GROUNDS ARE CONSIDERED PARTLY ALLOWED AS FAR AS THE APPEAL OF ASSESSEE IS CONCERNED. SINCE THE I SSUE IS CONSIDERED IN THE LIGHT OF THE CO-ORDINATE BENCH DECISIONS WE FIND NO MERIT IN RE VENUE CONTENTIONS OF ADOPTING RATE AT 2% ADOPTED BY THE TPO WHICH HAS NO BASIS. ACCORD INGLY REVENUE GROUNDS ON THIS ISSUE ARE REJECTED. CROSS-OBJECTION IS IN SUPPORT O F THE DRP ORDER WHICH IN OUR VIEW BECOMES ACADEMIC. ACCORDINGLY THE CROSS-OBJECTION IS ALSO CONSIDERED DISMISSED FOR STATISTICAL PURPOSES. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF AY 2011-12 FOLLOWING THE DECISION THEREIN WE DIRECT THE AO/TPO TO FIX THE FEES AT 0.27% AS GUARANTEE COMMISSION ON THE AM OUNT INVOLVED. ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 6. GROUND NO. 7A TO 7D RELATE TO ALP ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTION OF INTEREST ON MOBILIZATI ON ADVANCES FOR AN AMOUNT OF RS. 131 12 22 228/-. 6.1 THE TPO ASKED THE ASSESSEE TO SHOW CAUSE VIDE L ETTER DATED 14/01/2016 AS TO WHY INTEREST SHOULD NOT BE CHARGED @ 14.75% ON THE OUTSTANDING RECEIVABLES. THE ASSESSEE NEITHER F URNISHED THE MONTH-WISE BREAK UP OF RECEIVABLES NOR HAS OBJECTE D TO CHARGING OF INTEREST IN ITS REPLY DATED 22/01/2016. HOWEVER IN ITS REPLY ASSESSEE STATED THAT THE BALANCES ARE RECEIVABLE AGAINST THE MOBILIZATION ADVANCES AND NO FURTHER CLARIFICATION OR THE DETAIL S AS CALLED FOR HAD BEEN SUBMITTED AS NOTED BY TPO. 6.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE THE TPO OBSERVED THAT WITH THE RETROSPECTIVE INTRODUCTION O F EXPLANATION TO SECTION 92B RECEIVABLES FORM A PART OF INTERNATION AL TRANSACTION FOR WHICH ALP NEEDS TO BE DETERMINED. RELYING ON THE DE CISION OF CHIEL INDIA PVT. LTD. (TS-145-ITAT-2014(DEL)-TP) WHICH A LSO TOOK INTO ACCOUNT THE JUDGMENT DATED 07/10/2010 OF ITAT BANGA LORE BENCH IN 11 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. THE CASE OF M/S LOGIX MICRO SYSTEMS LTD. VS. ACIT ( ITA NO. 524/BANG/2009) AND IN THE ABSENCE OF DETAILS AND FU RNISHING OF INFORMATION BY THE ASSESSEE THE TPO COMPUTED THE I NTEREST CHARGEABLE AS UNDER: OUTSTANDING RECEIVABLES FROM AE RS. 8889642223 INTEREST @ 14.75% ON RS. 888964223 RS. 1311222228 LESS: INTEREST CHARGED NIL ADJUSTMENT RS. 131 12 22 228/- THUS THE ALP OF THE INTEREST CHARGEABLE ON RECEIVA BLES WAS DETERMINED AT RS. 131 12 22 228/- AND THE SHORTFALL OF RS. 131 12 22 228/- WAS TREATED AS ADJUSTMENT U/S 92CA OF THE ACT BY THE TPO. 6.3 AGGRIEVED THE ASSESSEE RAISED OBJECTIONS BEFOR E THE DRP WHICH ARE AS UNDER: THE LD. TPO OUGHT TO HAVE APPRECIATED THE FACT TH AT THE ASSESSEE COMPANY IS AN ESTABLISHED EPC CONTRACTOR I N THE COUNTRY. THE ASSESSEE COMPANY GETS MOBILIZATION ADV ANCE FROM THE AWARDEE COMPANIES AS PER EPC CONTRACTS WHICH IS INTEREST FREE. THE ASSESSEE COMPANY SUB-CONTRACTS PART OF TH E EPC CONTRACT TO VARIOUS SUB-CONTRACTORS INCLUDING AES A ND RELEASES PART OF THE MOBILIZATION ADVANCE RECEIVED TO THE SU B-CONTRACTORS AS INTEREST FREE MOBILIZATION ADVANCE AT A CERTAIN % OF CONTRACT VALUE AS PER THE TERMS OF AGREEMENTS WITH THEM. THE LD. TPO OUGHT TO HAVE APPRECIATED THE FACT TH AT THE MOBILIZATION ADVANCES ARE TO BE ADJUSTED AGAINST FU TURE SUPPLIES OR RECOVERED FROM EACH BILL RAISED ON THE CONTRACT WORK COMPLETED OVER THE STIPULATED PERIOD AND CANNOT BE SAID TO BE DUE AND NOT COLLECTED. THE LD. TPO OUGHT TO HAVE APPRECIATED THAT THE AS SESSEE DID NOT CHARGE ANY INTEREST ON MOBILIZATION ADVANCES GI VEN TO ITS NON - AES AND THAT NOT CHARGING ANY INTEREST TO ITS AES IS CONSISTENT WITH THE ARM'S LENGTH PRINCIPLE WHILE AP PLYING THE CUP METHOD FOR DETERMINING THE ALP. THE LD. TPO HAS ERRED IN APPLYING THE DOMESTIC PL R OF 14.75% ON THE TRANSACTION OF MOBILIZATION ADVANCES GIVEN TO FOREIGN ENTITIES BY EQUATING IT INCORRECTLY WITH TH E INDIAN INVESTMENT IN BANK DEPOSIT STOCKS MUTUAL FUNDS OR REAL ESTATE. 12 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. WITHOUT PREJUDICE TO ABOVE GROUNDS; THE TPO ERRED IN NOT UNDERSTANDING THE CORRECT NATURE OF SERVICES BY IGN ORING THE SUBMISSIONS FILED BY ASSESSEE FROM TO TIME. 6.4 THE DRP OBSERVED THAT NO JUSTIFICATION WAS GIVE N AS TO WHY THE ASSESSEE CHOSE NOT TO REPLY THE TPO WHEN THE OPPORT UNITY WAS GIVEN AND ADDITIONAL INFORMATION FILED BEFORE IT WHICH W AS FORWARDED TO THE TPO FOR THEIR COMMENTS. THE TPO SUBMITTED HER REPOR T DATED 02/11/2016 NEGATING THE CLAIMS OF THE ASSESSEE AS W ELL AS RELYING ON THE ORDER OF THE EARLIER PANEL OF DRP. CONSIDERING THE SAME THE DRP HELD THAT AS THE ONUS OF PROVING THE CLAIMS MADE HA S NOT BEEN DISCHARGED BY THE ASSESSEE THE OBJECTIONS RAISED W ERE REJECTED AND ORDER OF THE TPO WAS UPHELD. 6.5 AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6.6 BEFORE US THE LD. AR SUBMITTED THAT SINCE ASSE SSEE COMPANY IS NOT PAYING ANY INTEREST ON THE AMOUNTS RECEIVED BY IT FROM THE CONTRACTOR THE ADJUSTMENT IS NOT WARRANTED. HE FUR THER SUBMITTED THAT CHANGE OF NATURE OF TRANSACTION FROM MOBILIZATION A DVANCES TO LOANS AND ADVANCES IS NOT WARRANTED. HE ALSO SUBMITTED TH AT AS THE CASE OF NON CHARGING OF INTEREST IN THE CONTROLLED TRANSACT IONS IS COMPARABLE WITH THAT OF NON-CHARGING FROM UNCONTROLLED TRANSAC TIONS IN THESE INTERNATIONAL TRANSACTIONS NO TRANSFER PRICING ADJ USTMENT CAN BE MADE ON THIS COUNT. HE RELIED ON THE FOLLOWING CASES: 1. LANCO INFRATECH LTD. VS. DCIT AY 2011-12 IN ITA NO. 450/HYD/2016 (ASSESSEES OWN CASE) 2. EKL APPLIANCES LTD. VS. CIT ITA NO. 1068/2011 OF DELHI HC 3. CIT VS. INDO AMERICAN JEWELLERY LT. ITA NO. 10 53 OF 2012. 6.7 THE LD. DR ON THE OTHER HAND RELIED ON THE OR DERS OF TPO AND DRP. 6.8 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. SIMILAR ISSUE AROSE IN ASSESSEES OWN CA SE FOR AY 2011- 12 WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 13 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IT IS WELL ACCEPTED PRACTICE THAT THE CONSTRUCTION INDUSTRY PAY ADVANCES AT A CERTAIN PER CENTAGE OF THE CONTRACT VALUE TO MOBILISE VARIOUS RESOURCES FOR THE EXECUTION OF CON TRACT AND THESE ADVANCES ARE GIVEN IN THE REGULAR COURSE OF BUSINESS. AS SEEN FROM THE FACTS OF ASSESSEES CASE ASSESSEE IS UNDERTAKING AN EPC CONTRACT AND HAS RECEIVED MOBILI ZATION ADVANCES AS PART OF THAT. LIKE-WISE ASSESSEE HAS GIVEN SOME WORKS TO OTHER P ARTIES ON SUB-CONTRACT BASIS AND NECESSARILY IT HAS TO PROVIDE MOBILIZATION ADVANCES TO THE PARTIES. IT IS ALSO NOTICED THAT ASSESSEE HAS ADVANCED MOBILIZATION ADVANCES TO BOTH AES AND NON-AES AND NO INTEREST HAS BEEN CHARGED FROM EITHER PARTY. NOT ONLY THAT A SSESSEE IS ALSO NOT REQUIRED TO PAY ANY INTEREST ON THE MOBILIZATION ADVANCES RECEIVED WHICH ARE IN FACT MORE THAN THE AMOUNTS ADVANCED BY ASSESSEE. THUS THERE IS COMPLE TE UNIFORMITY IN THE ACT OF ASSESSEE IN NOT CHARGING INTEREST FROM BOTH AE AND NON-AE AND ALSO NOT PAYING INTEREST/CLAIMING INTEREST FOR THE ADVANCES RECEIVE D. FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF IND O AMERICAN JEWELLERY LTD. VS. CIT HON'BLE BOMBAY HIGH COURT (ITA NO. 1053 OF 2012) W E ARE OF THE VIEW THAT THERE IS NO NEED FOR CHARGING ANY INTEREST ON THE AMOUNTS ADVAN CED AS RECEIVABLES. SINCE THIS AMOUNT IS PART OF CONTRACT WORK IN OUR VIEW IT DOE S NOT ATTRACT ANY ADJUSTMENT UNDER TP PROVISIONS. MOREOVER ADVANCES GIVEN AS PART OF CONTRACT WORK DOES NOT REQUIRE ANY SPECIAL ADDITION WHEN THE TPO WAS ALREADY EXAMINED AND HELD THAT THE TRANSACTION RELATING TO WORK CONTRACT EXPENSES ARE WITHIN THE ALP DURING THE YEAR. THUS WHEN THE WHOLE WORK CONTRACT IS CONSIDERED WITHIN THE ALP W E ARE OF THE OPINION THAT THE ADVANCES GIVEN IN THE COURSE OF CONTRACT DOES NOT C ALL FOR SPECIAL ADJUSTMENT. MOREOVER THESE BUSINESS ADVANCES CANNOT BE CATEGOR IZED AS LOANS AND ADVANCES SO AS TO CONSIDER THEM FOR ADJUSTMENT. RELYING ON THE VARIOUS CASE LAW RELIED UPON BY THE LD. COUNSEL WE ARE OF THE OPINION THAT SINCE ASSES SEE-COMPANY IS NOT CHARGING ANY INTEREST FROM THE AES AND NON-AES AND ALSO NOT PAYI NG ANY INTEREST ON THE AMOUNTS RECEIVED BY IT FROM THE MAIN CONTRACTOR THIS ADJUS TMENT IS NOT WARRANTED. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN IN VARIOUS CASE LAW RELIED UPON BY ASSESSEE ABOVE WE HAVE NO HESITATION IN DELETING THE ABOVE ADJUSTM ENT. AS SEEN FROM THE ORDER OF THE TPO IN THE NEXT YEAR AY 2013-14 HE HAS CONSIDERED THE SAME ISSUE AND HAS NOT MADE ANY ADJUSTMENT BY STATING AS UNDER: 7.5 RECEIVABLES: WITH REGARD TO RECEIVABLES IT IS NOTICED FROM THE INFORMATION FILED THAT THE COMPANY IS NOT EXPORTING AND SUPPLYING ANY GOODS OR SERVICES TO AES. THE BALANCES APPEARING IN THE BALANCE SHEET ARE MOBILIZ ATION ADVANCES WHICH ARE TO BE ADJUSTED AGAINST FUTURE SUPPLY BILLS AND HENCE NO A DVERSE INFERENCE IS DRAWN. SINCE THE TPO ORDER IS IN TUNE WITH THE PROVISIONS OF THE ACT AND THE PRINCIPLES LAID DOWN ON THIS ISSUE WE ARE OF THE OPINION THAT NO A DJUSTMENT IS REQUIRED ON THE ISSUE OF MOBILIZATION ADVANCES DURING THE IMPUGNED YEAR ALSO . ACCORDINGLY GROUNDS RAISED BY ASSESSEE INCLUDING ADDITIONAL GROUNDS ARE ALLOWED. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF AY 2011-12 FOLLOWING THE DECISION THEREIN WE ALLOW T HE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE AND ACCORDINGLY INTER EST CHARGED ON MOBILIZATION ADVANCES ARE DELETED. 14 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. 7. GROUND NOS. 10A TO 20G RELATE TO ALP ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTION OF WORK CONTRACT EXPENSES FOR AN AMOUNT OF RS. 195 72 44 551/-. 7.1 THE TPO OBSERVED THAT T HE ANALYSIS CARRIED OUT BY THE TAXPAYER UNDER TNMM BY TAKING ITSELF AS THE TESTED PARTY IS NOT ACCEPTABLE. AS THE AMOUNT INVOLVED IN THE TRANSACTION WITH AE WHEN COMPARED TO THE TOTAL VOLUME OF TRANSACTIONS BEING INSIGNIFICANT T HE ANALYSIS UNDER TNMM BY TAKING THE ASSESSEE AS THE TESTED PARTY IS NOT IN LINE WITH THE TP REGULATIONS. THE FUNCTIONS PERFORMED BY THE TAXPAYER BEING MORE COMPLEX THAN THE AE TAKING AE AS THE TESTED P ARTY AND ANALYZING THE TRANSACTION IS THE BETTER APPROACH (H E RELIED ON THE FUNCTIONAL ANALYSIS DOCUMENT SUBMITTED BY ASSESSEE IN THE TP REPORT AT PAGE NO. 23 TO 24 ACCORDING TO HIM THE SINGAPO RE ENTITY IS THE LEAST RISK MITIGATED ENTITY AND HENCE SHOULD BE SE LECTED AS THE TESTED PARTY FOR THE ECONOMIC ANALYSIS). SIMILAR APPROACH HAS BEEN FOLLOWED IN THE ASSESSEE'S CASE IN THE PREVIOUS YEAR AND IT HAS BEEN CONCLUDED THAT THE PAYMENTS WERE AT ARM'S LENGTH SINCE THE MARGINS OF THE SINGAPORE ENTITY AS COMPARED WITH THE FOREIGN COMPA RABLES WAS WITHIN +/- 5%. AN ECONOMIC ANALYSIS FOR THE CURRENT YEAR IS AS FOLLOWS: 7.2 THE TPO CONDUCTED SEARCH FOR SUITABLE COMPARABL E COMPANIES IN ONE SOURCE DATABASE (CONSIDERING COMPANIES IN SI NGAPORE UNDER THE SIMILAR INDUSTRY IN WHICH THE ASSESSEE OPERATES THE SEARCH PROCESS IS ENCLOSED IN A CD ALONG WITH THIS ORDER). LANCO INTERNATIONAL PTE LTD IS TAKEN AS THE TESTED PARTY AND OP/OR IS TAKEN AS THE PLI. 6 COMPANIES HAVE BEEN IDENTIFIED. IT IS SEEN THAT THE MARGIN EARNED BY THE AE IS MORE THAN THE AVERAGE MA RGIN EARNED BY THE COMPARABLE COMPANIES. THEREFORE THE TPO CONCLU DED THAT THE ASSESSEE HAS PAID EXCESS PAYMENTS OVER AND ABOVE TH E MARKET PRICE AND HENCE HE MADE THE FOLLOWING ADJUSTMENT: THE FINANCIALS OF THE LANCO INTERNATIONAL PTE LTD. SINGAPORE ARE AS FOLLOWS: 15 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. (IN US $) REVENUE 793781630 ADD: EXCHANGE DIFFERENCE -410612 OPERATING REVENUE 793371018 COST OF SALES 677847841 ADD: OPERATING EXPENSES 32380775 LESS: LOAN INTEREST 0 OPERATING COST 710228616 OPERATING PROFIT 83142402 OP/OC 11.70 OP/OR 10.48 7.3 TPO OBSERVED THAT ONESOURCE DATABASE WAS USED TO IDENTIFY THE COMPARABLE COMPANIES IN SINGAPORE WHICH ARE IN SIMILAR LINE OF BUSINESS. TURNOVER FILETER OF MIL USD TO 200 MIL US D WAS CONSIDERED AS THE TURNOVER OF THE AE IS 95 MIL USD. COMPANIES WITH NO FINANCIAL INFORMATION NO BUSINESS DESCRIPTION NO DATA WERE NOT CONSIDERED. COMPANIES WHICH ARE FUNCTIONALLY DIFFERENT WERE ALS O NOT CONSIDERED. WHEREVER THE FINANCIAL INFORMATION FOR THE ENTIRE Y EAR IS NOT AVAILABLE PRO-RATA APPROACH WAS ADOPTED. (MIL.USD) OP/OC OP/OR CW GROUP HOLDINGS LTD. 14.02 12.29 HAI LECK HOLDINGS LTD. 5.57 5.28 BENG KUANG MARINE LTD. 3.39 3.28 JEP HOLDINGS LTD. -13.24 -15.26 KOYO INTERNATIONAL LTD. 13.76 12.10 TRITECH GROUP LTD. 6.20 5.84 ARITHMETIC MEAN 4.95 3.92 16 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. AFTER APPLYING THE AVERAGE MARGINS OF THE COMPARABL ES TO THE FINANCIALS OF THE ASSESSEE THE RESULTS ARE AS UNDE R: DESCRIPTION AMOUNT ARMS LENGTH PRICE 4.95% ACTUAL WORKS CONTRACT EXPENSES PAID 29836044988 ARMS LENGTH MARGIN (%) (ALM(OP/OR) 3.92% TRANSFER PRICE (MARGIN OF SINGAPORE PTE) WITH HIGHER RANGE +/-5% OF 10.19%) HENCE NOT WITHIN ARMS LENGTH 10.48% EXCESS MARGIN OVER AND ABOVE THE ARMS LENGTH 6.56% ADJUSTMENT U/S 92CA (29836044988*6.56% 195 72 44 551 7.4 AGGRIEVED THE ASSESSEE RAISED FOLLOWING OBJECT IONS BEFORE THE DRP: THE LD. TPO ERRED IN NOT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE COMPANY TO OFFER ITS OBJECTIO NS VIA A SHOW CAUSE NOTICE AS PER THE PROVISO TO SECTION 92C (3) OF THE ACT BEFORE MAKING AN ADJUSTMENT OF RS. 195 72 44 55 1/- ON WORK CONTRACT EXPENSES PAID. THE LD. TPO HAS ERRED IN NOT ACCEPTING THE COMPAR ABILITY ANALYSIS CONDUCTED BY THE ASSESSEE IN THE TRANSFER PRICING DOCUMENTATION (TP REPORT'). THE LD. LD. TPO/ AO ERRED IN SELECTING UPL SINGA PORE AS THE TESTED PARTY SINCE IT IS MORE COMPLEX THAN THE ASSE SSEE. THE TECHNICAL AND PERFORMANCE RELATED OBLIGATIONS AND R ISKS ASSOCIATED WITH THE BTG SUPPLY ARE SOLELY WITH THE AE WHEREAS THE ASSESSEE IS ONLY SELLING THE EQUIPMENT SUPPLIED BY AE AS IT IS ON HIGH-SEA SALE TO THE CUSTOMER UNDER THE SUPPL Y CONTRACT ENTERED WITH CUSTOMER. THE ACTIVITY OF AE IS HIGHLY COMPLEX AND THE ACTIVITY OF ASSESSEE IS SIMPLE IN NATURE. THERE FORE THE ASSESSEE ONLY SHOULD HAVE BEEN TESTED PARTY AND NOT THE AE. THE LD. TPO/ AO USED PERSISTENT LOSS MAKING COMPA NY ALSO AS A COMPARABLE WITHOUT WHICH THE MARGINS OF THE CO MPARABLE COMPANIES WOULD BE MUCH HIGHER THAN MEAN ARRIVED BY AO. 17 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. WITHOUT PREJUDICE TO THE ABOVE THE TPO/ AO ERRED IN THE SELECTION OF FUNCTIONALLY DISSIMILAR COMPANIES AS C OMPARABLES. ALL THE COMPARABLES SELECTED ARE HOLDING COMPANIES WITH ONE OF THEM BEING A CONSISTENTLY LOSS MAKING. THE TPO OUGHT TO HAVE APPRECIATED THAT THE ENTIRE SEARCH PROCESS APPLIED BY IT IS RENDERED INCONSISTENT FOR THE FACT THAT THERE EXISTS DIFFERENT YEAR ENDING FOR THE COMPARAB LES AND THE TESTED PARTY. THE TPO HAS ERRED IN NOT ADOPTING CONSISTENT AND BASIC FILTERS IN THE SEARCH PROCESS AND THERE BY ARRIVING AT FUNC TIONALLY DISSIMILAR COMPARABLE TO THE AE. THE TPO OUGHT TO H AVE APPRECIATED THE FACT THAT THE COMPARABLES SELECTED BY THE TPO ARE ENGAGED IN DIVERSIFIED BUSINESSES WHEREAS THE S INGAPORE ENTITY FETCHES ITS REVENUE ONLY FROM EPC BUSINESS. 7.5 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE THE DRP UPHELD THE ORDER OF TPO REJECTING THE CONTENTIONS R AISED BY THE ASSESSEE BY OBSERVING AS UNDER: HAVING CONSIDERED THE SUBMISSIONS THE ADDITIONAL INFORMATION FILED IN SUPPORT OF ITS CONTENTIONS WAS FORWARDED T O THE AO/TPO FOR THEIR COMMENTS IN THE INTERESTS OF JUSTICE. THE TPO SENT HER REPORT A COPY OF WHICH WAS FURNISHED TO THE ASSESS EE FOR ITS COMMENTS WHICH HAS NOT BEEN SUBMITTED TILL DATE. I N THE ABSENCE OF THE SAME DIRECTIONS ARE ISSUED BASED ON INFORMATION ALREADY AVAILABLE ON RECORD. THE ASSESSEE HAS SUBMITTED FAR ANALYSIS OF ITSELF A ND ITS AE IN RELATIONS TO INTERNATIONAL TRANSACTIONS ON ACCOU NT OF WORK CONTRACT EXPENSES. IT IS VERY INTERESTING TO NOTE T HAT SIMILAR ANALYSIS WAS DONE BY THE TPO FOR THE PREVIOUS YEAR I.E. 2011- 12 IN THE SAME MANNER WHICH WAS NOT OBJECTED TO BY THE ASSESSEE. THE TPO FURTHER POINTS OUT THAT EVEN PRIO R TO AY 2011-12 SIMILAR ANALYSIS WAS CARRIED OUT BUT NO OB JECTION WAS RAISED BY THE ASSESSEE EVEN IN THOSE YEARS OBVIOUS LY BECAUSE NO ADJUSTMENTS WERE PROPOSED AND MADE. IN THE CURRE NT YEAR THE ASSESSEE IS OBJECTING THE SAME WHICH CLEARLY SH OWS IT IS TAKING CONTRADICTORY STANDS YEAR ON YEAR ON SIMILAR ANALYSIS I.E. OBJECTING TO THE ADJUSTMENT WHEN MADE AND NOT OBJEC TING WHEN NO ADJUSTMENT MADE ON SIMILAR FACTS AND CIRCUMSTANC ES. HENCE WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF THE TPO AND REJECTING CONTENTIONS OF THE ASSESSEE. 7.6 AGGRIEVED BY THE ORDER OF DRP THE ASSESSEE IS IN APPEAL BEFORE US. 18 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. 7.7 LD. AR OF THE ASSESSEE SUBMITTED THAT THE TESTE D PARTY FOR BENCH MARKING A TRANSACTION SHOULD ALWAYS BE THE IN DIAN ASSESSEE AND NOT THE FOREIGN ENTITY. HE SUBMITTED THAT SELEC TING FOREIGN TESTED PARTY IS DIFFICULT AND EACH YEAR IS INDEPENDENT AND TO BE ASSESSED INDEPENDENTLY. WITHOUT PREJUDICE TO THE ABOVE LD. AR SUBMITTED THAT A PERSISTENT LOSS MAKING COMPANY NAMELY JEP HOLDINGS LTD. HAS BEEN CONSIDERED AS COMPARABLE WHICH IS NOT CORRECT. HE R ELIED ON THE FOLLOWING CASES: 1. AURIONPRO SOLUTIONS LTD. ITA NO. 7872/MUM/2011 . 2. M/S ONWARD TECHNOLOGIES LTD. ITA NO. 7985/MU/2 010 3. GE MONEY FINANCIAL SERVICES PVT. LTD. TS-457-IT AT- 2016(DEL-TP) 4. M/S SUTHERLAND HEALTHCARE SOLUTIONS LTD. ITA NO . 831/HYD/2009 5. GLOBAL VANTEDGE PVT. LTD. ITA NOS. 2763 & 2764/ DEL/2009. 6. BOBST INDIA PVT. LTD. ITA NO. 1380/PN/2010. 7.8 LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF TPO/DRP. 7.9 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE LD. AR HAS BROUGHT ON RECORD THE FIN ANCIAL RESULTS DECLARED BY JEP HOLDINGS LTD. WHICH ARE REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE: PARTICULARS 2014 2013 2012 2011 OPERATING REVENUE 39.3 29.5 27.8 19 OPERATING COST 40.8 30.2 28.6 21.9 OP -1.5 -0.7 -0.8 -2.9 OP/OC -3.68 -2.32 -.2.80 -13.24 OP/OR -0.04 -0.02 -0.03 -0.15 AS THIS COMPARABLE COMPANY IS CONSISTENTLY MAKING L OSSES OVER THE PERIODS STATED ABOVE AS HELD IN THE CASE OF BOBST INDIA PVT. LTD. (SUPRA) THE COORDINATE BENCH OF PUNE HELD THAT THE COMPANY MAKING PERSISTENT LOSS FOR THE PAST THREE YEARS IS NOT GOO D COMPARABLE. SO 19 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. THE SAME SHOULD BE EXCLUDED FOR COMPUTING OPERATING MARGIN OF COMPARABLE COMPANIES FOR ARRIVING AT ALP IN RELATIO N TO INTERNATIONAL TRANSACTION. ACCORDINGLY WE DIRECT THE TPO TO ELIM INATE THIS COMPARABLE AND DETERMINE THE ALP AFRESH. THE FRESH RESULT MAY BE CONSIDERED FOR ALP ADJUSTMENT BY REMOVING THE ABOVE FROM COMPARABLES IN CASE THE FINAL ALP IS WITHIN THE +/ - 5% RANGE CLAIM OF THE ASSESSEE MAY BE ACCEPTED. CORPORATE TAX MATTERS 8. GROUND NO. 4A TO 4I RELATE TO ADDITION OF RS. 88 51 02 720/- ON ACCOUNT OF SUB-CONTRACT EXPENSES. 8.1 THE AO OBSERVED THAT DURING THE COURSE OF HEARI NG THE ASSESSEE COMPANY HAD SUBMITTED THE COPIES OF RA BIL LS WORK ORDERS ETC. AND ON VERIFICATION OF THE SAME THE AO WAS OF THE VIEW THAT THE SAME WERE NOT AMENABLE FOR VERIFICATION AFTER LAPSE OF OVER THREE YEARS AND THESE DOCUMENTS DID NOT ESTABLISH THAT TH E SERVICES HAD BEEN ACTUALLY RENDERED. THEREFORE THE AO HELD THA T THE EXPENDITURE AMOUNTING TO RS. 88 51 02 720/- CLAIMED BY THE ASSE SSEE FOR THE YEAR UNDER CONSIDERATION UNDER THE HEAD SUB-CONTRACT EXP ENSES IN RESPECT OF 5 COMPANIES WAS TREATED AS NON-GENUINE AND BOGUS AND WAS NOT ALLOWED TO BE CLAIMED AS EXPENDITURE U/S 37 OF THE ACT AND DISALLOWED AND ADDED TO THE INCOME RETURNED. 8.2 WHEN THE ASSESSEE OBJECTED BEFORE THE DRP IT H ELD THAT MERE CERTIFICATE WITHOUT SUPPORTING EVIDENCE TO INDICATE THE EXPENDITURE HAD BEEN INCURRED WOULD NOT SUBSTANTIATE THE CLAIM OF THE ASSESSEE AND THE ONUS OF DISCHARGING THE CLAIMS OR EVIDENCE IN SUPPORT OF ITS CONTENTIONS HAD NOT BEEN MET BY THE ASSESSEE AND RE LYING ON THE EARLIER DECISION DRP UPHELD THE ACTION OF THE AO. 8.3 AGGRIEVED BY THE ORDER OF THE DRP THE ASSESSEE IS IN APPEAL BEFORE US. 20 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. 8.4 LD. AR OF THE ASSESSEE SUBMITTED THAT AO MAY BE DIRECTED TO ACCEPT THE SUB-CONTRACT PAYMENTS AS ASSESSEE RECEI VED THE CORRESPONDING AMOUNTS FROM MAIN CONTRACTOR AND OFFE RED THE SAME FOR TAXATION. HE SUBMITTED THAT NO CORROBORATIVE EVIDEN CE WAS COLLECTED TO ESTABLISH THAT THE SUB-CONTRACTORS WERE BOGUS AN D ONLY PROFIT EMBEDDED IN THE PURCHASE CAN BE ADDED TO THE INCOME OF THE ASSESSEE. HE ALSO SUBMITTED THAT ALL THE PAYMENTS H AVE BEEN MADE THROUGH BANKING CHANNELS THEREFORE NO DISALLOWANC E CAN BE MADE. HE RELIED ON THE FOLLOWING CASE LAW: 1. LANCO INFRATECH LTD. VS. DCIT FOR AY 2011-12 IN ITA NO. 450/HYD/2016 (ASSESSEES OWN CASE) 2. CIT VS. S. KHADER KHAN SON [2012] 25 TAXMNN.COM 413 (SC) 3. GAJJAM CHINNA YELLAPA VS. ITO [2015] 59 TAXMANN .COM 69 4. BHOLANATH POLYFAB 355 ITR 290 (GUJ.) 5. SIMITH P SHETH 356 ITR 451 (GUJ._) 6. ITO VS. GROWEL ENEREGY CO. LTD. [2014] 47 TAXMA NN.COM 371 (MUM. TRIB.) 8.5 LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF AO AND DRP. 8.6 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. SIMILAR ISSUE AROSE IN ASSESSEES OWN CA SE FOR AY 2011-12 (SUPRA) WHEREIN THE COORDINATE BENCH OBSERVED AS UN DER: 14.4. THE CONTENTION THAT THE ASSESSEE BILLED THE MAIN CONTRACTOR AND SUB CONTRACT EXPENDITURE WAS INCURRED BY THOSE PERSONS/COMPANIES HAS NOT BEEN EXAMINED BY AO AS HE DID NOT GIVE ADEQUATE TIME TO FURNISH EVIDENC E AND DRP ALSO REFUSED TO EXAMINE THE EVIDENCE FURNISHED JUSTIFYING THE SUB CONTRACTS . THEREFORE WE ARE OF THE OPINION THAT AO CAN EXAMINE THIS ASPECT AFRESH AFTER GIVING DUE OPPORTUNITY TO ASSESSEE. THERE IS ALSO JUSTIFICATION IN ASSESSEES CLAIM THAT AO E RRED IN DISALLOWING THE AMOUNT OF SUB- CONTRACT EXPENDITURE INCLUDING SERVICE TAX WHICH W AS NEVER CLAIMED AS EXPENDITURE TO AN EXTENT OF RS. 11 31 32 746/. THIS CONTENTION IS ALSO REQUIRED TO BE EXAMINED. QUESTION OF DISALLOWANCE OF AN AMOUNT WHICH WAS NOT CLAIMED SHOULD NOT ARISE. CONSEQUENTLY WITHOUT RELYING ON THE SO CALLED STAT EMENTS WHICH HAS NO EVIDENTIARY VALUE CONSIDERING THAT NO ACTION WAS TAKEN EITHER I N THOSE COMPANIES OR IN THE COMPANIES IN WHOSE CASES THE SAID ENQUIRIES WERE CO NDUCTED( L& T PACL) WE DIRECT THE AO TO INDEPENDENTLY EXAMINE THE CLAIM OF SUB CO NTRACT EXPENDITURE. IN CASE ASSESSEE BILLED AND OFFERED THE SAID CONTRACT RECEI PTS AO IS DIRECTED TO ACCEPT THE SUB CONTRACT PAYMENTS AS ASSESSEE RECEIVED THE CORRESP ONDING AMOUNTS FROM MAIN 21 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. CONTRACTOR AND OFFERED THE SAME FOR TAXATION. IN CA SE THERE IS ANY FAILURE OR THE NEXUS WAS NOT FULLY ESTABLISHED ASSESSEE AGREES THAT BEI NG A SUBCONTRACTOR A SMALL PERCENTAGE OF THE EXPENDITURE CAN BE ESTIMATED FOR DISALLOWANCE FOLLOWING THE PRINCIPLES LAID DOWN BY THE COORDINATE BENCHES AS R ELIED UPON ABOVE. IN THAT EVENT AO IS DIRECTED TO DISALLOW ONLY A CERTAIN PERCENTAGE O F THE ABOVE AMOUNT IF NECESSARY. THE ADDITION MADE IS ACCORDINGLY DELETED AND THE ISSUE OF EXAMINATION OF IMPUGNED SUB CONTRACT PAYMENTS IS RESTORED TO AO TO CONSIDER AFR ESH AS DIRECTED. GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF AY 2011-12 FOLLOWING THE DECISION THEREIN AO IS D IRECTED TO ACCEPT THE SUB CONTRACT PAYMENTS AS ASSESSEE RECEIVED THE CORRESPONDING AMOUNTS FROM MAIN CONTRACTOR AND OFFERED THE SAME F OR TAXATION. FOLLOWING THE PRINCIPLES LAID DOWN BY THE COORDINAT E BENCHES AO IS DIRECTED TO DISALLOW ONLY A CERTAIN PERCENTAGE OF T HE ABOVE AMOUNT IF NECESSARY. THE ADDITION MADE IS ACCORDINGLY DELETED AND THE ISSUE OF EXAMINATION OF IMPUGNED SUB CONTRACT PAYMENTS IS RE STORED TO AO TO CONSIDER AFRESH AS DIRECTED. GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO. 5A TO 5C RELATE TO DISALLOWANCE OF LO SS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION OF RS. 1 19 18 79 0 13/-. 9.1 THE AO NOTICED THAT THE SAID CLAIM HAD BEEN MAD E AS ADDITIONAL CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS B Y THE ASSESSEE WHICH WAS NOT ACCEPTED BY THE AO AND MADE THE ADDIT ION. 9.2 WHEN THE ASSESSEE RAISED OBJECTION BEFORE THE D RP THE DRP UPHELD THE ADDITION BY OBSERVING AS UNDER: HAVING HEARD THE CONTENTIONS OF THE APPELLANT THE LEGISLATURE WHILE INTRODUCING SUB-SECTION (5) OF SECTION 139 WE RE AWARE OF THE FACT THAT THERE MAY BE CERTAIN WRONG STATEMENTS OR OMISSIONS IN THE RETURN OF INCOME AND THEREFORE THE PROVISION FOR FILING THE REVISED RETURN WAS INCORPORATED AND ACCORDINGLY EVERY ASSESSEE WAS ALLOWED A TIME OF ONE YEAR FROM THE END OF THE ASSESSMENT YEAR. WHEN THE LAW PROVIDES THAT ANY ERROR OR OMISSION CAN BE RECTIFIED ONLY BY FILING THE REVISE D RETURN WITHIN THE PRESCRIBED TIME U/S.139(5) NEITHER THE APPELLA NT IS ENTITLED TO RAISE SUCH CLAIM AFTER THE PRESCRIBED TIME BEFOR E THE ASSESSING OFFICER NOR THE ASSESSING OFFICER IS EMPO WERED TO ENTERTAIN SUCH CLAIM. RELIANCE IS PLACED ON THE DEC ISION OF THE 22 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. HON'BLE SUPREME COURT IN THE CASE OF GOETZE INDIA L TD AND THE LATEST HIGH COURT DECISION OF THE HONOURABLE ORISSA HIGH COURT IN THE CASE OF ORISSA RURAL HOUSING DEVELOPMENT COR PORATION LTD VS THE ASST. COMMISSIONER OF INCOME TAX IN W.P .(C) NO.4554 OF 2011. THE HONOURABLE SUPREME COURT' IN T HE CASE OF GOETZE (INDIA) LTD (SUPRA) HELD THAT THE ASSESS ING OFFICER HAS NO POWER TO ENTERTAIN FRESH CLAIM MADE BY THE A SSESSEE AFTER FILING OF THE ORIGINAL RETURN OTHER THAN BY F ILING OF A REVISED RETURN. ACCORDINGLY THE ASSESSING OFFICER HAS NOT COMMITTED AN ERROR BY REJECTING THE CLAIM OF THE ASSESSEE ACCOR DINGLY THE OBJECTION IS NOT FOUND ACCEPTABLE EVEN OTHERWISE AS PER PROVISIONS OF SECTION 144C THE DRP IS EMPOWERED TO DEAL WITH THE ISSUES ARISING OUT OF VARIATION TO RETURNED INC OME OR LOSS AND THEREFORE THE SAME CANNOT BE CONSIDERED BY THE PANEL AND IS REJECTED. 9.3 AGGRIEVED BY THE ORDER OF DRP THE ASSESSEE IS IN APPEAL BEFORE US. 9.4 THE LD. AR OF THE ASSESSEE REQUESTED THE BENCH TO ALLOW THE CLAIM OF FOREIGN EXCAHANGE LOSS OF RS. 1 19 18 79 0 13/- DUE TO THE FOLLOWING: THE COURTS HAVE DIRECTED TAX OFFICERS TO ALLOW TH E RELIEF EVEN IF IT HAS BEEN CLAIMED FOR THE FIRST TIME DURING THE A SSESSMENT PROCEEDINGS. ANY DIFFERENCE LOSS OR GAIN ARISING ON CONVERSIO N OF THE SAID LIABILITY AT THE CLOSING RATE SHOULD BE RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT FOR THE REPORTING PERIOD AS PER AC COUNTING STANDARD 11. FOREIGN CURRENCY LOSS INCURRED ON REVENUE ACCOUNT SHALL BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER SHOULD ASSIST THE TAX PAYER IN CLAIMING ANY RELIEF TO WHICH HE IS ENTITLED TO UNDER THE LAW . HE FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE A C LAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND IS ENTITLED TO CLAIM THE DEDUCTION WHICH WAS NOT CLAIMED IN THE ORIGINAL OR REVISED RETURN. HE RELIED ON THE FOLLOWING CASE LAW: 1. MAHINDRA & MAHINDRA LTD. VS. ADDL. CIT [2013] 4 0 TAXMANN.COM 522 (MUM. TRIB.) 2. ABAN OFFSHORE LTD. VS. DCIT ITA NO. 450/MDS/201 7 23 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. LD. AR SUBMITTED THAT FOREIGN CURRENCY LOSS INCURRE D ON REVENUE ACCOUNT SHALL BE ALLOWED AS REVENUE EXPENDITURE. F OR THIS PROPOSITION HE RELIED ON THE DECISION IN THE CASE OF CIT VS. WO ODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 254 9.5 LD. DR RELIED ON THE ORDERS OF AO AND DRP. 9.6 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD AS WELL AS THE CASE LAW CITED BY THE LD. AR. THE COORDINATE BENCH OF CHENNAI BENCH IN THE CASE OF ABAN OFFSORE LTD. (SUPRA) HELD AS UNDER: 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ISSUE RAISED BY THE ASSESSEE GOES TO TH E ROOT OF THE MATTER AND THE ASSESSEE HAS TAKEN A PLEA BEFORE THE DRP TO CONSIDER THIS ISSUE BUT REFUSED TO ENTERTAIN IT ON THE REASON THAT IT WAS NOT BEFORE THE TPO/AO. IN OUR OPINION ALL THE FACTS ARE AVAILABLE ON RECORD AND ASSESSEE MADE A CLAIM IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF AO FO R HIS CONSIDERATION. IN VIEW OF THE JUDGMENT OF SUPREME C OURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT (229 ITR 283) WHEREIN IT WAS HELD THAT A LEGAL GROUND CAN BE RAIS ED AT ANY STAGE OF APPEAL. FURTHER THE CO-ORDIANTE BENCH IN THE CASE OF M/S. ABHINIHA FOUNDATION PVT LTD. IN ITA NO.281/MD S.L2016 FOR THE A.Y 2011-12 THE TRIBUNAL VIDE ORDER DATED 29.04 .2016 WHEREIN ADMITTING THE ADDITIONAL GROUND THOUGH IT WAS NOT RAISED BEFORE THE ASSESSING OFFICER AND OBSERVED TH AT THE ASSESSEE IS ENTITLED TO RAISE NOT MERELY BY ADDITIO NAL LEGAL SUBMISSIONS BEFORE THE APPELLATE AUTHORITIES BUT I S ALSO ENTITLED TO RAISE ADDITIONAL CLAIMS BEFORE THEM. THE APPELLA TE AUTHORITIES HAVE THE DISCRETION WHETHER OR NOT TO PERMIT SUCH A DDITIONAL CLAIMS TO BE RAISED. IT CANNOT HOWEVER BE SAID TH AT THEY HAVE NO JURISDICTION TO CONSIDER THE SAME. THAT THEY MAY CHOOSE NOT TO EXERCISE THEIR JURISDICTION IN A GIVEN CASE IS A NOTHER MATTER. THE EXERCISE OF DISCRETION IS ENTIRELY DIFFERENT FR OM THE EXISTENCE OF JURISDICTION. THE JUDGMENT IN THE CASE OF GOETZ REPORTED 284 ITR 323(SC) WAS CONFINED TO A CASE WHE RE THE CLAIM WAS MADE ONLY BEFORE THE ASSESSING OFFICER AN D NOT BEFORE THE APPELLATE AUTHORITIES. THE COURT DID NOT LAY DOWN THAT A CLAIM NOT MADE BEFORE THE ASSESSING OFFICER CANNO T BE MADE BEFORE THE APPELLATE AUTHORITIES. THE JURISDICTION OF THE APPELLATE AUTHORITIES TO ENTERTAIN SUCH A CLAIM HAS NOT BEEN NEGATED BY THE SUPREME COURT IN THIS JUDGMENT. IN VIEW OF THE ABOVE DISCUSSION THIS ISSUE IS REMITTED BACK TO THE FILE OF AO IF REQUIRE THE AO SHOULD CALL FOR REMAND REPORT FROM THE TPO AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND ON MERI T WE 24 ITA NOS. 221 /HYD/2017 LANCO INFRATECH LTD. HYD. REFRAIN FROM COMMENTING ON MERITS AS THE LOWER AUTH ORITIES TO DECIDE IT. HENCE THIS GROUND IS REMITTED TO THE FI LE OF THE AO FOR FRESH CONSIDERATION. AS THE FACTS IN THE GIVEN CASE ARE SIMILAR TO THE A BOVE CASE CONSIDERING THE ABOVE RATIO WE REMIT THIS ISSUE BA CK TO THE FILE OF AO TO CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND ALL OW THE CLAIM ON THE BASIS OF I.T. PROVISIONS. 10. GROUND NOS. 1 TO 3 AND 11 TO 13 ARE GENERAL IN NATURE HENCE NEED NO ADJUDICATION. 11. GROUND NO.14 IS REGARDING CHARGING OF INTEREST U/S 234B AND 234D WHICH IS CONSEQUENTIAL IN NATURE THEREFORE THE AO IS DIRECTED ACCORDINGLY. 12. GROUND NO. 15 IS REGARDING INITIATION OF PENALT Y PROCEEDINGS U/S 271(1)(C) OF THE ACT WHICH IS PREMATURE TO CONSIDE R AT THIS STAGE. 13. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD DATED: 30 TH NOVEMBER 2017 KV COPY TO:- 1) M/S LANCO INFRATECH LTD. PLOT NO. 4 SOFTWARE UNIT LAYOUT HITECH CITY HYDERABAD 500 081 2) ACIT CIRCLE 16(1) HYD. 3) DRP BENGALURU 4) THE DEPARTMENTAL REPRESENTATIVE I.T.A.T. HYDE RABAD. 5) GUARD FILE