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TMI Blog2016 (11) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that as per the rule of consistency the adjustment on this account is consequential and no direction is necessary. TP adjustment - limited grievance of the assessee in respect of the comparable selected by the TPO is regarding Progressive Constructions Ltd, having RPT of 61% - Held that:- There is no quarrel on the point that while determining the ALP of an international transaction, it has to be tested by comparing with uncontrolled price, which means that the comparable price should not be influenced by the transaction between the related parties. Therefore, uncontrolled price taken as ALP shall not have any revenue from RPT. However, 0% RPT is not practically possible and therefore in the due course adjudication process, the Tribunal has taken a consistent view that in the normal course 15% is the tolerance range of RPT which can be relaxed maximum to 25%. In the case of the assessee, neither the assessee nor the TPO has applied the filter of RPT. However, it is a relevant factor for selecting the comparable price that RPT should not exceed the tolerance range as discussed above. In view of the above discussion, we set aside this issue to the record of AO / TPO to verify t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standard with regard to revenue recognition. Ground No. 3: The learned AO/Transfer Pricing Officer (hereinafter referred to as TPO for short) has grossly erred by not following the Circular No 14/2001 issued by the CBDT while proposing a transfer pricing adjustment under section 92CA(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act for short) without appreciating the fact that there is no intention as well as scope for shifting of profits outside India for the transactions which was completely consummated in India and being assessed as income and as well as expenditure as per provisions of the Act and the learned CIT (A) has erred in confirming the same. Ground No. 4: The learned TPO has grossly erred on facts and in law by proposing the enhancement to the income of the Appellant by holding that the transactions with Associate Enterprise of the Appellant do not satisfy the arm's length principle envisaged under the Act and the learned CIT (A) has erred in confirming the same. Further, in doing so they have grossly erred: (a) by selecting a company viz. Progressive Construction Ltd, which had earned abnormal return in the industry i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring a loss of ₹ 1,74,60,536/-. AO noted that during the year under consideration assessee has shown total contract receipt of ₹ 14,46,76,266/- on which the assessee has shown book loss of ₹ 6,74,312/- and after making adjustment as per the provisions of Income-tax Act, arrived at a loss of ₹ 1,74,60,536/-. AO asked the assessee to furnish the relevant details. Assessee has worked out the percentage completion by taking the actual cost during the year over total project cost. AO noted that the revenue recognition on the basis of revised cost adopted by the assessee is not proper. The method adopted by the assessee in view of the AO is applicable in the cases where actual revenue was not clearly measurable, whereas in the case of the assessee, the bills were submitted to the NHAL at the end of the month on the basis of actual work executed during the month. AO noted that in these bills assessee has also claimed additional cost on account of variations and on account of price escalation incurred. Thus the actual bills submitted by the assessee provide for additional price adjustment inclusive of additional cost incurred by the assessee in addition to the budge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Based on the method of accounting followed the assessee would have recognised 4.48% of estimated revenue of ₹ 459 crores i.e., ₹ 20.56 crores as against ₹ 14.46 crores shown in the books of account. These figures were taken by the CIT (A) on the basis of additional claim filed by the assessee before the Disputes Adjudication Board. Thus the CIT (A) concluded that unless the additional claim is settled, it is not possible to reliably estimate the cost and Revenue, based on percentage completion method. Accordingly the CIT (A) has directed the AO to compute the total income by considering the revenue of ₹ 14,11,08,715/- and cost incurred of ₹ 14,29,36,737/- after excluding the cost pertaining to AE and including the depreciation as well as disallowances made u/s.43B of the Act. 07. Before us, the Ld. AR of the assessee has submitted that as per para 10 of AS-7, the initial amount of revenue as well as variation in the contract work claim and incentive payment shall comprise the contract revenue. Thus the estimated revenue and cost is permissible under AS -7 in respect of the construction contracts and where a price of the contract is fixed. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total contract cost will exceed the total contract revenue. In such cases any expected excess of total contract cost over total contract revenue for the contract is recognised as an expense immediately. Thus the Ld. DR has submitted that when the cost as well as the revenue of the project can be estimated reliably, then the revenue should be recognised on actual basis and not on percentage basis. 09. We have considered the rival submissions as well as the relevant material on record. The AO rejected the books of account and estimated the income of the assessee at the rate of 8% on the actual cost incurred during the year as per the bills raised by the assessee. The CIT (A) has reversed the finding of the AO so far as the rejection of the books of account as well as estimation of the income at the rate of 8%. However, the CIT (A) has held that the income of the assessee should be computed on the basis of the actual cost and revenue as recorded in the books of account and has been certified by the NHAI. Relevant finding of the CIT (A) are in para 3.1.3, which is reproduced below : 3.1.3 Having heard the contention of the appellant, on perusal of the assessment order, it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of estimated costs is unwarranted.' The method of accounting of recognising revenue cost based on percentage completion is also not acceptable in view of the reasons given below:- (i) if the additional claim dated 14.9.2010 filed before the Dispute Adjudication Board, the appellant has made the following additional claims in respect of contract:- S No. Nature of Dispute Amount in (Rs.) 1 Loss due to price adjustment In Indian rupees 1,42,07,042/- 2 Non-reimbursement of escalation of foreign component 26,59,77,119/- 3 Claim on method of measurement 19,74,09,064/- 4 Interest on delayed reimbursement In respect of royalty 1,59,74,610/- 5 Losses due to non-payment of certified amount 6,42,56,408/- 6 The claim from the breach of the Agreement 10,47,47,172/- 7 On account of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost should be recognised as an expense in the period in which they are incurred. Hence, on the facts and circumstances of the case, it will not be appropriate to accept the method of percentage completion method followed by-the appellant in the assessment year which is the first assessment year . In the fact and circumstances of the case discussed above, the decision of the Honourable ITAT New Delhi in the case of DCIT v. Malibu Estate Pvt Ltd. (201-TIOL-374-ITAT-Delhi) on which the reliance has been placed by the appellant is not applicable as in that case in the assessment year 2006-07, the method of accounting regularly followed from the assessment year 2003-04 and accepted by the Department till the assessment year 2005-06 was rejected without assigning any reason contrary to the case of the appellant, in which in the first year itself, the percentage completion method has been rejected. Similarly, the decision of the ITAT Mumbai, in the case of Unique Enterprises v. ITO (2010-TIOL-737-ITAT-Mum.) on which the reliance has been placed by the appellant also , it is held that the method of Accounting regularly followed cannot be disturbed unless it is established that the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any error or illegality in the impugned order of the CIT (A) qua this issue. However, as regards the plea of the assessee that the consequential adjustment in the subsequent year is required, we are of the view that as per the rule of consistency the adjustment on this account is consequential and no direction is necessary. 11. Grounds 3 to 6 are regarding TP adjustment. During the year under consideration the assessee has reported international transactions as reproduced by the TPO in para 2.3, as under : 2.3 International Transactions (as mentioned in the 92 CE report) The following are the details of the international transactions as per 3CEB report: Sl. No. Description of the Transaction Amount 1 Sub-Contract payments ₹ 10,74,19,247 2 Materials issued for work execution ₹ 4,09,61,840 3 Reimbursement of expenses incurred ₹ 36,98,87,464 12. Out of these three international transactions, the transaction in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions with the AE are regarding the projects carried out in India and the AE of the assessee is subjected to tax in India. Therefore when both assessee as well as the AE are subjected to the tax jurisdiction of the same AO, then it is not a case of shifting of profit or a base erosion. In support of his contention he has relied upon of a decision of Hyderabad Bench of the Tribunal in the case of M/s. Vishwa Infrastructure and Services Ltd, v. DCIT [ITA Nos.1674/Hyd/2011 and 938/Hyd/2014, dt.30.03.2016]. He has further pointed out that for the subsequent assessment years, the AO / TPO has not made any TP addition in respect of the international transactions. 14. On the other hand, the Ld. DR has relied on the orders of authorities below and submitted that when no filter of RPT is applied, then raising this issue in respect of a particular comparable company cannot be accepted at this stage. 15. We have considered the rival submissions as well as the relevant material on record. The limited grievance of the assessee in respect of the comparable selected by the TPO is regarding Progressive Constructions Ltd, having RPT of 61%. There is no quarrel on the point that while determini ..... X X X X Extracts X X X X X X X X Extracts X X X X
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