2020 (9) TMI 314 - AT - Income Tax

TP Adjustment - comparable selection - functional dissimilarity - HELD THAT - Assessee company is engaged in the business of Design Engineering Services in the field of refineries, petrochemicals, cements, fertilizers power plants. The assessee company is also, engaged in the business of detailed engineering of EPC projects mainly with respect to terminals, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Addition of undisclosed receipt - AO called upon the assessee to submit reconciliation of TDS and income offered to tax, on the basis of TDS claim made as per Form- 26AS - HELD THAT - In light of averments made by the assessee that income from TDS deducted on account of additional design engineering service provided by IOT Mabagas Limited, was already offered tax in the Asst.Year 2009-10, we set aside the issue to the file of the Ld. AO and direct him to cause necessary verification and in case income was already offered to tax for Asst.Year 2009-10, then the Ld. AO is directed to delete additions for the year under consideration. Disallowances of professional fees for non deduction of TDS - HELD THAT - We deem it appropriate to set aside the issue to the file of the Ld. AO and direct him to cause necessary enquiries, in light of claim of the assessee that said amount pertains to bad debts written off. In case, the Ld. AO found that the amount of disallowances is not pertains to professional fees on which tax is required to be deducted, and then the same may be considered in accordance with law, as applicable to write off of bad debts. Value of the TP adjustment - Whether value of the TP adjustment needs to be made to the value of the international transactions instead of making the adjustments at entity level? - HELD THAT - Limit the adjustment only to the AE transactions by following the decision of Hon ble Bombay High court, in the case of Ratilal Becharlal Sons 2015 (11) TMI 1524 - BOMBAY HIGH COURT where it was categorically held that TP Adjustment needs to be made at transactions level and not at entity level.

Summary

Issues Involved:
1. Transfer Pricing Adjustments
2. Addition of Undisclosed Receipts
3. Disallowance of Professional Fees
4. Penalty under Section 271(1)(c)

Issue-Wise Detailed Analysis:

1. Transfer Pricing Adjustments:
- The assessee challenged the transfer pricing adjustments made by the TPO and upheld by the CIT(A), specifically the inclusion and exclusion of certain comparable companies.
- Mahindra Consulting Engineers Ltd.: The Tribunal found that Mahindra Consulting Engineers Ltd. (MCEL) is functionally dissimilar, engaged in diversified services without segmental data, and fails the export filter. The Tribunal directed the exclusion of MCEL from the final set of comparables.
- WAPCOS Ltd.: The Tribunal noted that WAPCOS Ltd. is a government undertaking with a different risk profile and high turnover, making it functionally dissimilar. The Tribunal directed the exclusion of WAPCOS Ltd. from the final set of comparables.
- Engineers India Limited: The Tribunal found Engineers India Limited to be a government undertaking with a different risk profile and significantly higher turnover. The Tribunal directed the exclusion of Engineers India Limited from the final set of comparables.
- Rites Ltd.: The Tribunal noted that Rites Ltd. is a government undertaking with a different risk profile and high turnover. The Tribunal directed the exclusion of Rites Ltd. from the final set of comparables.
- Chemtex Global Engineers Pvt. Ltd.: The Tribunal upheld the exclusion of Chemtex Global Engineers Pvt. Ltd. due to abnormal financial results and a significant decrease in industrial sales.

2. Addition of Undisclosed Receipts:
- The assessee contended that the addition of ?40,16,243 as undisclosed receipts was erroneous as the income had already been offered to tax in AY 2009-10. The Tribunal set aside the issue to the AO for verification and directed the deletion of the addition if the income was already offered to tax in AY 2009-10.

3. Disallowance of Professional Fees:
- The assessee argued that the disallowance of ?31,48,179 for non-deduction of TDS pertained to bad debts written off, not professional fees. The Tribunal set aside the issue to the AO for verification and directed the AO to consider the amount in accordance with the law applicable to bad debts.

4. Penalty under Section 271(1)(c):
- The Tribunal did not specifically address the penalty under Section 271(1)(c) in the detailed analysis, indicating that the issue might not have been pressed or was resolved in favor of the assessee.

Separate Judgments Delivered:
- The Tribunal delivered a separate judgment for the appeal filed by the assessee for AY 2011-12 and the revenue's appeal for the same year, reiterating the exclusion of certain comparables and upholding the DRP's directions to limit the TP adjustment to the value of international transactions.

Procedural Aspect:
- The Tribunal acknowledged the delay in pronouncing the order due to the nationwide lockdown imposed because of the COVID-19 pandemic and justified the extension of the limitation period based on the decision in DCIT vs. JSW Limited.

Conclusion:
- The appeals filed by the assessee for AY 2010-11 and 2011-12 were partly allowed, while the appeals and cross-objections filed by the revenue for AY 2011-12 were dismissed.