×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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28-02-2019, Aquatech Systems, Section 144C(13), 92C(3), Tribunal Pune
The appeal filed by assessee is against order of DCIT, Circle-1(1), Pune,dated 27.01.2016 relating to assessment year 2011-12 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short ‘the Act’).
2. The assessee has raised the following grounds of appeal:-
1. On the facts and in circumstances of the case and in law, the Ld. Assessing Officer ('AO') / Transfer Pricing Officer ('TPO') erred in proposing a transfer pricing adjustment of Rs.1,36,48,827/- in relation to 'Professional fees' payable to Aquatech Guangzhou Water Treatment Company Limited Guangzhou, China, and the Hon. DRP, erred in restricting the relief only to Rs.4,00,000/- resulting in a disallowance of Rs.1,32,48,827/- under the provisions of Chapter X of the Act; The Appellant prays that the said adjustment is erroneous, unwarranted and ought to be deleted.
2. On the facts and in circumstances of the case and in law, the Ld. AO/ TPO, under the directions of the Hon. DRP, erred in not stating any reasons to show that either of the conditions mentioned in clause (a) to (d) of section 92C(3) of the Act were satisfied before disregarding the arm's length price computed by the Appellant. The Appellant prays that the said adjustment is erroneous, unwarranted and ought to be deleted.
3. On the facts and in circumstances of the case and in law, the Ld. AO/ TPO, under the directions of the Hon. DRP, erred in not appreciating the economic analysis conducted by the Appellant as well as not appreciating the evidences furnished by the Appellant to demonstrate that the services were actually rendered and holding that no service was rendered by the AE as well as no tangible benefit was derived by the Appellant from receipt of the Professional consultancy services. The Appellant prays that the said adjustment is erroneous, unwarranted and ought to be deleted.
4. On the facts and in circumstances of the case and in law, the Ld. AO/ TPO, under the directions of the Hon. DRP, erred in not following any method to benchmark 'Professional Fees' and not appreciating that the Transactional Net Margin Method prescribed under section 92C(1) of the Act read with Rule 10B(1)(e) of the Rules is the most appropriate method for computation of arm's length price of Professional Fees'. The Appellant prays that the said adjustment is erroneous, unwarranted and ought to be deleted.
5. On the facts and in the circumstances of the case, the Ld. AO erred in initiating penalty proceeding under section 274 read with Section 271(1)(c) of the Act and levying interest under section 234A, 234B and 234C of the Act.
3. The issue raised in the present appeal is against transfer pricing adjustment in respect of international transactions undertaken by the assessee.
4. Briefly, in the facts of the case, the assessee was engaged in the business of providing engineering, software and technical design services with use of Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), advanced pressure vessel design and product data system design techniques. The assessee procured, assembled and supervised waste water treatment plants and projects. The assessee was also supplying surface water and industrial wastewater treatment systems and services. For the year under consideration, the assessee had furnished return of income declaring total income of ₹ 3,31,37,349/-. The case of assessee was picked up for scrutiny. The Assessing Officer noted that the assessee had entered into international transactions with its associated enterprises aggregating to ₹ 38.07 crores. The Assessing Officer thus, made reference under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determining the arm's length price of international transactions. During TP proceedings, the TPO noted various activities undertaken by the assessee and various international transactions entered into by the assessee, which are tabulated at pages 2 and 3 of order of TPO. The assessee was engaged in five different business segments. The TPO considered FAR analysis of following segments:-
a) Engineering Designing Services;
b) Contract R&D Trading Segment;
c) ITES Segment;
d) EPC purchases; and
e) Trad ng Segment
5. The TPO after analyzing search criteria and acceptance / rejection matrix applied by the assessee also applied certain new filters and show cause notice was issued to the assessee. The TPO rejected multiple year data applied by assessee and was of the view that only data for contemporaneous period has to be applied. The TPO also rejected the companies with less than 75% earnings from exports and the concerns which have related party transactions exceeding 25%. The assessee selected four concerns as comparables, whereas the TPO selected six companies as comparables. The TPO also rejected the contention of assessee that KPO/LPO were high end