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TMI Blog2019 (8) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... t the consideration received by assessee from the contract awarded could not be termed as an international transaction. A.O. did not point-out to any material to show as to how the transaction were international transaction in the matter. Since the A.O. failed to point-out that any of the party to the contract were associated concern of the assessee, there were no justification to apply such provisions of Law against the assessee. In case there would have been any international transaction between assessee and other parties to the contract, the A.O. shall have to refer the matter to TPO for getting his Opinion into the matter. But, A.O. did not do anything and framed regular assessment against the assessee. Therefore, on this sole reason itself, the Ld. CIT(A) was justified in holding that such provisions are not applicable in the case of the assessee. The Ld. D.R. failed to point-out any error in the Order of the Ld. CIT(A) in deleting the entire addition. No justification to interfere with the Order of the Ld. CIT(A) in deleting the addition. - decided in favour of assessee. - ITA.No.108/Del./2014 - - - Dated:- 8-8-2019 - Shri Bhavnesh Saini, Judicial Member And Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h section 271G are not applicable? 7. Whether on the facts and circumstances of the case in law, the Ld. CIT(A) failed to discuss the statement on oath recorded u/s 131 of the Managing Director of the assessee company? 2. Briefly the facts of the case are that assessee company is a domestic company and filed return of income declaring loss of ₹ 87,32,064/-. The A.O. completed the assessment under section 143(3) vide order dated 16.12.2011 at the income of ₹ 80,58,710/-. Ignoring the computation on income given by the assessee, the AO computed the profit from business applying rate of 11 % on the total cost incurred on the contract. The assessee is engaged in the business of identifying, scouting, negotiating and identifying opportunities for foreign companies in Indian steel Market. The appeal before the Ld. CIT(A) was regarding the receipts and loss incurred by the appellant in such a contract, details of which is noted in para 3.2 of the appellate order in which it is also noted that assessee was appointed as Sub-Contractor. A contract was entered into between Mount Blanc Trading and the assessee company for the replacement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In fact the assessee company had to charter a vessel for delivery of equipments on time to avoid delay in completion schedule and liquidity demurrage. 3.1. The A.O., however, did not accept the explanation of the assessee and held that assessee explained only the expense part of the contract and does not address the issue on revenue side. The AO held that Mr. Ranjeet Kumar, director of the appellant company is only an employee director without any shares in the company. Hence, the AO observed that revenue bifurcation of the contract has not been decided on independent considerations having regard to scope of services to be executed, risk assumed and asset employed. This has resulted in tweaking of profits in favour of supply and off shore services generally not taxable in India and against the onshore portion on contract. It can be noted that the price of the part sub-contracted to the assessee company was stated to be portion of price payable in India rupees pegged at ₹ 9.92 crores inclusive of all taxes and duties. Out of this price, the assessee was assigned to undertake all the activities assigned to Mont Blanc Trading Company, Mauritius including ocean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of cost + margin method. 3.3. The A.O. inferred that the revenue bifurcation of the contract has not been decided on independent considerations having regard to the scope of services to be executed, risk assumption and assets employed. The transactions undertaken by the assessee company with its assumed Associated Enterprise M/s. Mont Blanc is an international transaction. The assessee company has not maintained any documentation as prescribed under section 92D of the I.T. Act. The A.O. also mentioned that the definition of international transaction is defined under section 92B and held that the provisions of Law clearly show that transaction between assessee and its Associated Enterprise is in the nature of international transaction subject to application of transfer pricing law. The assessee objected to these observations of the A.O. before the Ld. CIT(A) and it was submitted that assessee company, M/s. Mont Blank Trading Company and M/s. MZTM, Ukraine which are parties to the execution of the contract awarded by Steel Authority of India are not Associated Enterprises in terms of provisions of Section 92A of the I.T. Act. The assessee company has only one Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Since the transaction is not an international transaction as discussed above, the documents prescribed u/s 92D and u/s 92E of the Act are not relevant in this case. The AO also attempted to bring the transaction under the transfer pricing mode in view of the fact that in the previous A.Y. the assessee had submitted transfer pricing report on transactions under consultancy agreement entered into with M/s Mont Blanc Trading Company. The prescribed form No. 3 GEB for transfer pricing submitted by the appellant for A.Y. 2008-09 indicates that the assessee company had entered into only one transaction with its associated enterprise in the A.Y. 2008-09 that is with ISTIL. The name of M/s Mont Blanc Trading Company was not even named as one of the associated enterprise in this consultancy agreement. Thus, the finding of the AO is factually incorrect. The AO also did not attempt to get the opinion of the transfer pricing authority on this issue. Finally, leaving all these issues aside, the AO applied the provision of Section 44BBB of the Act which is discussed in succeeding paragraphs of this order. Thus, instead of sailing in the imaginary water, the A.O. could have brought some facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,71,145/- Add : Depreciation as per Companies Act ₹ 2,75,6161- Add: Expenses to extent disallowance u/s.40(a) ₹ 1,51,686/- Work contract expenses disallowed ₹ 4,40,667/- Income included in P L A/c Expenses ₹ 6,72,465/- Less : Depreciation as per Companies Act Rs.- 2,35,169/- Interest Income Rs.-2,78,844/- Preliminary exp written off u/s 35C Rs.- 17,700/- ₹ 77,79,866/- Add : Income From Other Sources ₹ 2,78,844/- Total Taxable Income as assessed by the Assessing Officer ₹ 80,58,710/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence in support of his case, Assessing officer is duty bound to falsify of assessee s claim with more convincing and appealing evidence - Held, yes - Whether mere suspicion cannot lead to conclusion that transaction is sham - Held, yes There may be some reflection in the whole affair that may create some doubt. But, the reflection of transaction is independent of the genuineness of the transaction. The AO attempted to establish that this is a case of transfer pricing, arms length pricing and service contract of power project. But there was no TP study, no co 'able uncontrolled transactions for such treatment. Thus, assuming that a portion of profit is retained by Mont Blanc, the AO applied provision of 44BBB on the cost. Again not restricting the computation of income at 10% of cost or payment as stipulated in the Sec.44 BBB of the Act, the AO extrapolated this percentage to 11.11% as the total contract receipt amount was not known. In the facts and circumstances of the case the estimation of profit made by AO applying the provisions of section 44BBB is deleted. 4. The Ld. D.R. mere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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