Doosan Power Systems India Private Limited, Gurgaon v. ACIT (OSD), CHENNAI

ITTPA 83/CHNY/2018 | 2014-2015
Pronouncement Date: 31-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 8321717 RSA 2018
Assessee PAN AABCB5946J
Bench Chennai
Appeal Number ITTPA 83/CHNY/2018
Duration Of Justice 2 year(s) 3 month(s) 26 day(s)
Appellant Doosan Power Systems India Private Limited, Gurgaon
Respondent ACIT (OSD), CHENNAI
Appeal Type Income Tax (Transfer Pricing) Appeal
Pronouncement Date 31-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 31-03-2021
Date Of Final Hearing 15-03-2021
Next Hearing Date 15-03-2021
Last Hearing Date 15-03-2021
First Hearing Date 31-12-2020
Assessment Year 2014-2015
Appeal Filed On 05-12-2018
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI ! ' #!' $ % ' #( BEFORE SHRI V. DURGA RAO JUDICIAL MEMBER AND SHRI G. MANJUNATHA ACCOUNTANT MEMBER ! ./ IT(TP)A NO.83/CHNY/2018 ) /ASSESSMENT YEAR: 2014-15 M/S. DOOSAN POWER SYSTEMS INDIA PVT. LTD. 16 TH FLOOR DLF SQUARE JACARANDA MARG NEAR NH-8 DLF PHASE-II GURGAON-122 002. [PAN: AABCB 5946J] VS. THE ASST. COMMISSIONER OF INCOME TAX (OSD) CORPORATE RANGE-1 CHENNAI. ( /APPELLANT) ( *+% /RESPONDENT) % - . / APPELLANT BY : MR. VIKRAM VIJAYARAGHAVAN ADVOCATE *+% - . /RESPONDENT BY : MR.SRINIVASA RAO CIT - /' /DATE OF HEARING : 15.03.2021 01) - /' / DATE OF PRONOUNCEMENT : 31.03.2021 2 / O R D E R PER SHRI G. MANJUNATHA A.M : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/ S.143(3) READ WITH SECTION 144C(13 ) OF THE INCOME TAX ACT 1961 (HERE INAFTER THE ACT) DATED 16.10.2018 WHICH IN TURN PASSED IN PURSUANT TO DIRECTIONS OF THE I.T(TP).A NO.83/CHNY/2018 :- 2 -: DISPUTE RESOLUTION PANEL (DRP)-2 BENGALURU U/S.144 C(5) OF THE ACT DATED 25.09.2018 AND PERTAINS TO ASSESSMENT YEAR 20 14-15. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY IS ENGAGED IN PROVIDING ENGINEERING PROCUREMENT AND C ONSTRUCTION SERVICES TO THERMAL POWER GENERATING COMPANIES IN I NDIA. THE COMPANY ALSO RENDERS ENGINEERING SERVICES TO ITS ASSOCIATED ENTERPRISES. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSAC TIONS WITH ITS ASSOCIATED ENTERPRISES TO THE TUNE OF RS. 1701 01 3 5 249/-. THE CASE WAS TAKEN UP FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS A REFERENCE WAS MADE TO TRANSFER PRICIN G OFFICER (TPO) TO DETERMINE THE ARMS LENGTH PRICE OF INTERNATIONAL T RANSACTIONS WITH ITS ASSOCIATED ENTERPRISES. THE TPO VIDE HIS ORDER DATE D 31.10.2017 HAS SUGGESTED UPWARD ADJUSTMENT OF RS. 3 34 57 602/- TO WARDS ENGINEERING SERVICES SEGMENT AND DOWNWARD ADJUSTMENT OF RS. 84 41 75 545/- TOWARDS PROJECT SEGMENT. SIMILARLY THE TPO HAS SUG GESTED DOWNWARD ADJUSTMENT OF RS. 2 03 57 705/- TOWARDS ROYALTY PAY MENT. 3. CONSEQUENT TO TP ADJUSTMENT AS SUGGESTED BY THE LD. TPO THE AO HAS PASSED DRAFT ASSESSMENT ORDER U/S. 143(3) R/ W S. 92CA OF THE ACT ON 26.12.2017 AND MADE TP ADJUSTMENT AS SUGGEST ED BY THE LD. TPO IN RESPECT OF ENGINEERING SEGMENT AND PROJECT S EGMENT AND ALSO I.T(TP).A NO.83/CHNY/2018 :- 3 -: DOWNWARD ADJUSTMENT TOWARDS ROYALTY PAYMENT. THE A O HAD ALSO PROPOSED DISALLOWANCE U/S. 36(1)(VA) OF THE ACT TOW ARDS BELATED PAYMENT OF EMPLOYEES CONTRIBUTION OF ESI AND PF TO THE TUNE OF RS. 71 89 050/-. 4. THE ASSESSEE HAS FILED ITS OBJECTION BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE AO PROPOSING T P ADJUSTMENT AS SUGGESTED BY THE LD. TPO. THE ASSESSEE HAS CHALLENG ED COMPARABLE SELECTED BY THE LD. TPO AND HAS ALSO OPPOSED ENTITY LEVEL ADJUSTMENT PROPOSED IN RESPECT OF PROJECT SEGMENT AND ENGINEER ING SEGMENT ON THE GROUND THAT IT IS WELL SETTLED PRINCIPLE OF LAW THAT TP ADJUSTMENT CAN BE MADE ONLY IN RELATION TO TRANSACTIONS WITH ITS A SSOCIATED ENTERPRISES BUT NOT TO A THIRD PARTY TRANSACTIONS. THE ASSESSEE ALSO CHALLENGED ADDITIONS PROPOSED TOWARDS DISALLOWANCE OF EMPLOYEE S CONTRIBUTION TO PF AND ESI IN LIGHT OF THE DECISION OF HON'BLE MADRA S HIGH COURT IN THE CASE OF CIT VS. M/S. INDUSTRIAL SECURITY & INTELLIGENCE IND IA PVT. LTD. IN TAX APPEAL NOS. 585 & 586 OF 2015 . 5. THE LD. DRP VIDE ITS DIRECTION DATED 25.09.2018 REJECTED OBJECTIONS FILED BY THE ASSESSEE AND CONFIRMED TP A DJUSTMENT PROPOSED BY THE LD.TPO IN RESPECT OF PROJECT SEGMEN T AND ENGINEERING SEGMENT AND HAS ALSO UPHELD THE PROPOSED ADJUSTMENT TOWARDS ROYALTY PAYMENT. THE LD. TPO HAS ALSO UPHELD ADDITIONS PROP OSED BY THE AO I.T(TP).A NO.83/CHNY/2018 :- 4 -: TOWARDS DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF AND ESI BY FOLLOWING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION (SUPRA) AND FURTHER BY RELIED UPON CIRCULAR NO.22/15 DATED 17.12.2015 ISSU ED BY THE CBDT. 6. PURSUANT TO DIRECTIONS OF DRP THE AO HAS PASSED FINAL ASSESSMENT ORDER U/S. 143(3) R/W S. 144C(3) OF THE ACT ON 16.10.2018 AND MADE ADDITIONS TOWARDS TP ADJUSTMENT IN RESPECT OF PROJECT SEGMENT AND ENGINEERING SEGMENT AND HAS ALSO ROYALT Y PAYMENT. IN ADDITION HE HAS MADE ADDITIONS TOWARDS PAYMENT OF EMPLOYEES CONTRIBUTION TO PF & ESI BY FOLLOWING THE CIRCULAR ISSUED BY CBDT DATED 17.12.2015. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. AR FOR THE ASSESSEE REFERRING TO VARIOUS GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL SUBMITTED THAT ALT HOUGH THE ASSESSEE HAS CHALLENGED TP ADJUSTMENT IN LIGHT OF COMPARABL ES SELECTED BY THE AO TO DETERMINE THE MARGIN EARNED BY COMPARABLES AN D FURTHER TO COMPARE THE SAME WITH MARGIN EARNED BY THE ASSESSEE BUT HE IS GOING TO RESTRICT HIS ARGUMENTS ONLY IN RESPECT OF ENTITY LEVEL ADJUSTMENT PROPOSED BY THE LD. TPO AND AFFIRMED BY THE LD. DRP BECAUSE THE ISSUE OF ADJUSTMENT TOWARDS INTERNATIONAL TRANSACTI ONS ALONE IS ALMOST SETTLED BY THE DECISIONS OF HON'BLE SUPREME COURT AN D OTHER HON'BLE I.T(TP).A NO.83/CHNY/2018 :- 5 -: HIGH COURTS WHERE IT WAS CATEGORICALLY HELD THAT T P ADJUSTMENTS NEEDS TO BE MADE AT TRANSACTIONS LEVEL WITH REFERENCE TO INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AE BUT NOT AT ENTITY LEVEL. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITTED THAT ALTHOUGH THE ASSESSEE HAS CHALLENGED COMPARABLES SELECTED BY THE AO BUT KEEP ING IN VIEW OF THE FACT THAT THERE IS NO MUCH VARIATION IN THE MARGINS OF THE ASSESSEE WHEN COMPARE TO MARGINS AT COMPARABLES SELECTED BY THE AO HE REST HIS ARGUMENTS TO THE EXTENT OF ADJUSTMENT MADE AT E NTITY LEVEL. HE FURTHER SUBMITTED THAT AS REGARDS WORKING CAPITAL A DJUSTMENT ALTHOUGH THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF ITAT CHENNAI IN ASSESSEES OWN CASE THE LD. TP O AS WELL AS DRP HAS ERRED IN NOT PROVIDING WORKING CAPITAL ADJUSTME NTS. THEREFORE A SUITABLE DIRECTION MAY BE GIVEN TO THE LD. TPO TO R E-COMPUTE WORKING CAPITAL ADJUSTMENTS IN ACCORDANCE WITH THE RULES PR OVIDED THEREIN BY FOLLOWING THE DECISION OF ASSESSEES OWN CASE FOR E ARLIER YEAR. 8. ON THE OTHER HAND THE LD. DR STRONGLY SUPPORTIN G THE ORDER OF LD. TPO AS WELL AS LD. DRP SUBMITTED THAT THE LD. T PO BROUGHT OUT CLEAR FACTS IN LIGHT OF DECISION OF HON'BLE ITAT CH ENNAI IN THE CASE OF CATERPILLAR INDIA PVT. LTD. THAT ENTITY LEVEL ADJUSTMENT CAN BE MADE EVEN THOUGH THE ISSUE IS SETTLED BY THE HON'BLE BOMBAY H IGH COURT IN FAVOUR OF THE ASSESSEE IN THE CASE OF M/S. FIRESTONE INTERNATIONAL PVT. LTD. I.T(TP).A NO.83/CHNY/2018 :- 6 -: FURTHER THE SLP FILED BY THE DEPARTMENT AGAINST TH E ORDER BY HON'BLE BOMBAY HIGH COURT HAS BEEN ADMITTED BY THE HON'BLE SUPREME COURT. THEREFORE TO KEEP THE ISSUE ALIVE THE LD. TPO HAS PROPOSED ENTITY LEVEL ADJUSTMENT AND HENCE THERE IS NO ERROR IN TH E FINDINGS RECORDED BY THE LD. DRP TO AFFIRM THE FINDINGS OF LD. TPO/AO AND THEIR ORDER SHOULD BE UPHELD. 9. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW ALONG WITH CASE LAWS CITED BY THE LD. AR FOR THE ASSESSEE. WE FIND THAT ALTHOUGH THE ASSESSEE HAS CHALLENGED TP ADJUSTMENT MADE BY T HE LD. TPO IN LIGHT OF FAR ANALYSIS AND COMPARABLES BUT THE LD. AR FOR THE ASSESSEE HAS RESTRICTED HIS ARGUMENTS IN RESPECT OF ENTITY L EVEL ADJUSTMENTS MADE BY THE LD. TPO. THEREFORE WE REST OUR FINDIN GS TO THE ISSUE OF ENTITY LEVEL ADJUSTMENT MADE BY THE LD. TPO IN LIGH T OF CERTAIN JUDICIAL PRECEDENCE CITED BY THE LD. AR FOR THE ASSESSEE. A DMITTEDLY IT IS A WELL SETTLED PRINCIPLE OF LAW BY THE DECISION OF HO N'BLE SUPREME COURT IN THE CASE OF CIT VS. M/S. FIRESTONE INTERNATIONAL PVT. LTD. IN SLP NO.41327/2015 WHERE THE HON'BLE SUPREME COURT HAS DISMISSED THE SLP FILED BY THE DEPARTMENT AND AFFIRMED TO THE FIN DINGS OF HON'BLE BOMBAY HIGH COURT WHERE THE HON'BLE HIGH COURT HEL D THAT TP ADJUSTMENTS CANNOT BE MADE BEYOND THE TRANSACTIONS OF THE ASSESSEE I.T(TP).A NO.83/CHNY/2018 :- 7 -: WITH ITS ASSOCIATED ENTERPRISES. THE HON'BLE BOMBAY HIGH COURT IN YET ANOTHER CASE OF CIT VS. TARA JEWELS EXPORTS PVT. LTD. (SUPRA) HAD ALSO CONSIDERED IDENTICAL ISSUE AND HELD THAT TP ADJUSTM ENTS CANNOT BE MADE AT ENTITY LEVEL. THE ITAT CHENNAI IN THE CASE OF PRODAPT SOLUTIONS PVT. LTD. VS. DCIT IN ITA NO.566/CHNY/201 7 HAS CONSIDERED AN IDENTICAL ISSUE AND HELD THAT TRANSFER PRICING A DJUSTMENT HAS TO BE MADE ONLY IN RESPECT OF TRANSACTIONS OF THE ASSESSE E BEING A TESTED PARTY WITH ASSOCIATED ENTERPRISES AFTER COMPARING THE TRANSACTIONS MADE BY SIMILARLY PLACED COMPANY IN UNCONTROLLED TR ANSACTIONS WITH NON ASSOCIATED ENTERPRISES. THE SUM AND SUBSTANCE O F THE RATIOS LAID DOWN BY HON'BLE SUPREME COURT AND HON'BLE HIGH COURT S ARE THAT TP ADJUSTMENT CAN BE MADE ONLY IN RESPECT OF TRANSACTI ONS OF THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES BUT NOT T O A THIRD PARTY TRANSACTIONS AT ENTITY LEVEL. ALTHOUGH THE LD. TPO AS WELL AS LD. DRP HAVE ACCEPTED THE FACT THAT THE ISSUE HAS BEEN DECI DED IN FAVOUR OF THE ASSESSEE BY VARIOUS HON'BLE HIGH COURTS BUT BECAUSE THE SLP FILED BY THE DEPARTMENT HAS BEEN ADMITTED BY THE HON'BLE SUP REME COURT THEY HAVE PROPOSED ADJUSTMENT AT ENTITY LEVEL TO KEEP TH E ISSUE ALIVE. BUT FACT REMAINS THAT THE SLP FILED BY THE DEPARTMENT H AS BEEN DISMISSED BY THE HON'BLE SUPREME COURT VIDE ITS ORDER DATED 3 1.01.2018 AND HENCE THE ISSUE OF TP ADJUSTMENT AT ENTITY LEVEL H AD ATTAIN FINALITY BY I.T(TP).A NO.83/CHNY/2018 :- 8 -: DISMISSAL OF SLP FILED BY THE DEPARTMENT BY THE HON 'BLE SUPREME COURT. THEREFORE WE ARE OF THE CONSIDERED VIEW THA T THE LD. TPO AS WELL AS DRP HAS ERRED IN MAKING TP ADJUSTMENT AT EN TITY LEVEL. HENCE WE DIRECT THE LD. TPO TO RESTRICT TP ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. THE OTHER ISSUE RAISED BY THE ASSESSEE INCLUDING COMPARABLES SELECTED BY THE AO AND AVERAGE MARGINS OF COMPARABLES IS NOT PRESSED BY THE LD. AR FOR THE ASSESSEE AND H ENCE THERE IS NO REQUIREMENT OF ADJUDICATING THE ISSUE AT THIS LEVEL . 10. AS REGARDS WORKING CAPITAL ADJUSTMENT IT WAS T HE CLAIM OF THE LD. AR FOR THE ASSESSEE THAT THE ITAT CHENNAI BENCH IN ASSESSEES OWN CASE FOR THE AY 2011-12 HAS CONSIDERED AN IDENTICAL ISSUE AND HELD THAT WORKING CAPITAL ADJUSTMENT IS NECESSARY WHILE COMPUTING PROFIT LEVEL INDICATOR AFTER ANALYZING THE MARGINS OF COMP ARABLES. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE LD. TPO NEED S TO COMPUTE WORKING CAPITAL ADJUSTMENT HAVING REGARD TO THE MAR GINS OF THE COMPARABLES AFTER CONSIDERING THE WORKING CAPITAL L EVELS. BUT FACT REMAINS THAT THE DETAILS WITH REGARD TO WORKING CAP ITAL ADJUSTMENT OF COMPARABLES IS NOT PLACED BEFORE US. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE MATTER NEEDS TO GO BACK TO THE FILE OF LD. TPO TO RE-CONSIDER THE WORKING CAPITAL ADJUSTMENT IN LI GHT OF THE FINDINGS OF I.T(TP).A NO.83/CHNY/2018 :- 9 -: THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2011-12. HENCE THIS ISSUE IS SET ASIDE TO THE FILE OF THE LD. TPO. 11 THE OTHER GROUNDS TAKEN BY THE ASSESSEE TOWARDS TP ADJUSTMENT ON ACCOUNT OF PAYMENT OF ROYALTY AND CORPORATE TAX ISSUE OF DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF AND E SI ARE NOT PRESSED. HENCE THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 31 ST MARCH 2021 IN CHENNAI. SD/ - SD/ - ( ) (V. DURGA RAO) /JUDICIAL MEMBER ( ' #!' $ % ) (G. MANJUNATHA) ' /ACCOUNTANT MEMBER /CHENNAI 3! /DATED: 31 ST MARCH 2021 . EDN SR.PS 2 - */45 65)/ /COPY TO: 1. % /APPELLANT 2. *+% /RESPONDENT 3. 7/ ( )/CIT(A) 4. 7/ /CIT 5. 58 */ /DR 6. 9 /GF