9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (6) TMI 496 - AT - Income TaxDetermination of profit - Basis of mark at 8% on total overall cost - operating cost for rendering services to the group companies - Held that - The assessee company engaged in development of IT parks, managerial and technical services to the industrial park and SEZ and income of the assessee is having direct nexus with the operations of SEZ sister concerns. For sister concerns, there is a operational difficulty to work 100% capacity due to various contributing factors like labour, wages and administrative cost. When the industrial park operates at optimum level due to volume of business it indirectly increase the service charges payable to the assessee and realistic inherent reasons for the method of accounting integrated with sister companies. The basis of the Assessing Officer to mark up 8% cost relying on the similar project consultancy of other assessee. The AO selected the profit percentage of other entities differ on management functionalities and business propositions. The ld. Assessing Officer has not conducted any independent investigation to support that there is under valuation of services by the assessee and no comparables of enterprises were provided to show that amount charged to the group company is reasonably very low. The Assessing Officer arbitarily relied on the findings of the assessee and marked up the cost by 8% without considering the submissions and valuable information on disputed issued of the assessee. The charging of fees is not definite measuring criteria as it differs from company policies. The assessee company clarified on chargeability of fees during construction stage and post construction with supporting evidence and analogy of service fees and the Revenue for the first time has raised such objections. Considering the above decision, we set aside the order of Commissioner of Income Tax (Appeals) and direct the Assessing Officer to delete the mark up and pass the orders.
Issues Involved:
1. Jurisdiction of the Assessing Officer in making additions to income. 2. Imputation of an 8% markup on the total operating cost by the Assessing Officer. 3. Commercial expediency of transactions between the appellant and related domestic entities. Detailed Analysis: 1. Jurisdiction of the Assessing Officer in Making Additions to Income: The appellant contended that the action of the Assessing Officer in making additions to the income was arbitrary and lacked jurisdiction. The Tribunal examined the procedural aspects followed by the Assessing Officer, including the issuance of notice under section 143(2) and the subsequent scrutiny. The Tribunal found that the procedural norms were adhered to, thereby affirming the jurisdiction of the Assessing Officer in making the additions. 2. Imputation of an 8% Markup on the Total Operating Cost: The crux of the dispute was the Assessing Officer's decision to impute an 8% markup on the total operating cost of the appellant. The appellant argued that this markup was arbitrary and lacked any rational basis. The Assessing Officer had compared the appellant's charges with those of M/s. Ashok Leyland Properties, which charged 5% of the project cost during the construction period. The Assessing Officer concluded that the appellant's charges were significantly lower and thus imputed an 8% markup. The Tribunal scrutinized this decision and found that the Assessing Officer had not conducted any independent investigation to substantiate the claim of under-valuation of services. The Tribunal noted that the appellant had provided a detailed explanation of its fee structure during different stages of the project, supported by evidence. The Tribunal also referenced a similar case (ITA No.3/Bang/2014), where it was held that the Assessing Officer could not estimate income based on profits of other entities without determining the Arm's Length Price (ALP). The Tribunal concluded that the Assessing Officer's imputation of the 8% markup was not justified and directed its deletion. 3. Commercial Expediency of Transactions: The appellant argued that the transactions with related domestic entities were based on business objectives and commercial expediency, which do not necessarily result in profits. The Tribunal considered the appellant's business model, which involved rendering project management and asset management services to its group companies. The Tribunal acknowledged the operational difficulties and varying factors affecting the appellant's revenue, such as labor, wages, and administrative costs. The Tribunal emphasized that the Assessing Officer had accepted the service charges in subsequent assessment years and that the price charged by the appellant was consistent across different years. The Tribunal found no merit in the Assessing Officer's selective scrutiny of the assessment year in question, especially when the same service agreement was in place for earlier and subsequent years. The Tribunal ruled that the appellant's method of charging fees was reasonable and based on commercial expediency. Conclusion: The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the 8% markup. The appeal of the assessee was allowed, with the Tribunal emphasizing the need for consistency and rationality in assessing service charges and rejecting arbitrary income estimations without substantial evidence. Order Pronounced: The appeal of the assessee in ITA No.1255/Mds/2015 is allowed. Order pronounced on Thursday, the 28th day of April, 2016, at Chennai.
|
