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TMI Blog2020 (3) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal and the Commissioner (Appeals) based on the material on record, it is apparent that the terms of functions performed, assets employed, risk undertaken, the price charged in comparable uncontrolled transactions entered into by virtue of the contract between APL and JPL and Shandong HO vis- -vis the contract awarded to Shandong PO by Shandong HO, are identical. It is based upon such concurrent findings of fact recorded by it after appreciating the material on record that the Tribunal has arrived at the conclusion that the arm s length price of the transaction in question is required to be computed by adopting the CUP method. Therefore, unless there is any perversity in the findings of fact recorded by the Tribunal upon appreciation of the evidence on record, no question of law can be said to arise from the impugned order. The learned senior standing counsel for the appellant is not in a position to point out any perversity in the concurrent findings of fact recorded by the Tribunal after appreciating the evidence on record. It is not the case of the revenue that any irrelevant material has been taken into consideration by the Tribunal or that any relevant material has been ign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the transaction between APL/JPL and Shandong HO which merely related to awarding of contract. 5. The Ld. CIT(A) erred in law and on facts in holding that the comparables selected by the TPO were functionally incomparable without assigning any reason whatsoever. 3. At the outset, learned AR submitted that issues raised by Revenue in all these three appeals are squarely covered by the orders of Hon ble ITAT confirmed by Hon ble Gujarat High Court in the case of assessee itself and learned CIT(A) has followed AYs.2009-10 2010-11 only to allow relief to the assessee. The learned AR in this aspect invited our attention to year-wise chart placed on record wherein AO s page and para and CIT(A) s page and para numbers were mentioned and in the remarks column relevant ITA Nos. in the case of assessee itself were mentioned which has been followed by learned CIT(A). 4. The learned DR fairly agreed that the issues were covered in favour of the assessee. 5. We have heard the rival parties and have gone through the material placed on record. 6. We first take ITA No. 80/Ahd/2018 for AY 2011-12. 7. In this appeal, first ground is regarding the action of the learned CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (JPL) for Mundra and Haryana Power Projects respectively have continued from A.Y. 2009-10 till the year under appeal before me. There is no material change in the accounting methods followed by the Appellant and income offered by the Appellant u/s 44BBB(2) of the Act. The AO has also not brought on record any further evidences which can at least demonstrate that the facts in the year under appeal before me are different or distinguishable then the immediate preceding A.Ys. 2009-10 and 2010-11. Therefore, I am of the opinion that the issues before me in the year under appeal have already been decided by CIT (A), Gandhinagar in the immediate preceding A.Ys.2009-10 and 201011, wherein, they have given detailed reasoning in accepting the books of accounts of the Appellant; accepting the income declared u/s 44BBB(2) of the Act and discarding the action of the AO in estimating income after rejecting books of accounts as well as alternative addition of income by virtue of provisions of S.44BBB(1) of the Act. 7. It is also noted that the findings of CIT (A), Gandhinagar have also been confirmed by the Hon'ble ITAT and Hon'bie Gujarat High Court in the Appellant's own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It has maintained books of account and got them audited also. Besides, the appellant has submitted audit report of a chartered accountant on veracity of financial statements and audit report as per Companies (Auditor's Report), 2003 in terms of section 227(4'A) of the Companies Act. c) So far as the applicability of the AS-7 is concerned, one of the objections of Ld.AO was that the same is not applicable to the Appellant Company being a foreign company. I do not find it true, because as per Section 594 of the Companies Act, 1956 the company, which is incorporated outside India and has established place of a business in India is required to prepare its Balance Sheet and Profit Loss Account as per the various provisions of the Companies Ac!, as if it is a Indian Company with the meaning of the Companies Act. Consequently, it follows that the Accounting Standard AS-7 is applicable to it. d) Accordingly, the Appellant has claimed to have recognized revenue and cost following the percentage completion method on the basis of proportion of cost contract costs incurred for work performed till the reporting date to the estimated total contract costs. It is further an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een submitting the details of budgeted cost to the tax the office, which have already been accepted by the department. The Appellant also placed on record the audited financial statements for F.Ys 2009-10 and 2010 11 and submitted and claimed that from the perusal of such financial statements, it is established that the Appellant has actually incurred the cost as estimated. f) One of the objections of the AO is that the Appellant ought to have followed another method of stage of completion of the project i.e. (c) Completion of a physical proportion of the contract work. The AO has further observed that as per Annexure 3 of the contract entered into by the Appellant with Adani Power Ltd, the payment to the Appellant shall be released on the basis of milestones prescribed in Annexure 3, and till the reporting date, the Appellant has raised invoices of Rs.l30,86,91,429 which shows that physical work of the contract is completed to that extent only. Therefore, AO was of the view that the Appellant ought to have followed method (c) completion of a physical proportion of the contract work as prescribed in para 29 of AS 7, and accordingly, the difference between the actual expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges. In both these cases, recognizing revenue on completion of certain stages according to payment terms or raising of bills cannot be the best method. I do not find any wrong in the method adopted by the appellant. As observed earlier, there is no big difference estimated cost and profit percentage declared from year to year. The expenses have been audited and no substantive defect has been discovered/pointed out. The rejection of books of accounts u/s 145 (3) is not held justified these circumstances. I have noted that the jurisdictional Gujarat High court decision in the case of CIT vs. Advanced Construction Co. (P) Ltd reported in 275 ITR 30, wherein it has been held that the provision, therefore specifically provides that the choice of method of accounting lies with the assessee, the only caveat being that it has to show that the chosen method has been regularly followed. The section is couched in mandatory terms and the Department is bound to accept the assessee's choice of method and regularly employed, except for the situation, wherein the Assessing officer is permitted to intervene, in case it is found that true income, profits and gains cannot be arrived at by the met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under sub-section (I) of section 44BBB of the Act therefore in case of assessee being a foreign company engaged in the business of civil construction or business of erection of plant or machinery or testing or commissioning thereof in connection with a turnkey power project approved by the Central Government would be taxed at the rate of 10% of the amount paid or payable to the assessee or to any person on behalf of the assessee on account of such civil construction, erection etc work. Subsection (2) of section 44BBB of the Act would however give an option to the assessee to claim lower profit if the assessee keeps and maintains the books of accounts and other documents as provided in subsection (2) of section 44AA of the Act and gets the accounts audited and furnishes the audit report as required under section 44AB. The AO thereupon would frame an assessment of the total income of the assessee under sub section (3) of section 143 of the Act. In the present case, the CIT (Appeals) as well as the Tribunal both held that the assessee had fulfilled all requirements of sub-section (2) of section 44BBB of the Act. It is not the case of the revenue that the assessee had not maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A) has dealt this issue from para 19 to 27 wherein he has dealt with the issues raised by A.O. and has decided in favour of assessee by relying on the decisions of Hon ble Tribunal and Hon ble Gujarat High Court in the case of assessee itself. 9. We find that Hon ble Tribunal in the case of assessee itself in AY 2010-11 has dismissed the appeal of the Revenue wherein the Revenue has taken similar grounds of appeal reproduced as follows: i) The Ld. CIT(A) erred in law and on facts in holding that the action of the AO in rejecting the books of account of the assessee company was incorrect inspire of clear evidence brought on record that the profit computed by the assessee was not reliable. ii) The Ld. CIT(A) erred in law and on facts in holding that the action of the AO in resorting to estimation of income on presumptive basis at 10% u/s 44BBB(1) or alternately @ 11.79% under normal provisions of the Act was not correct. iii) The Ld. CIT(A) erred in holding that in the present facts and circumstances, CUP was a better method for benchmarking as against TNMM adopted by the TPO. iv) The Ld. CIT(A) erred in holding that the transaction of awarding of cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionally separate entity. Accordingly, the profits to the PE shall have to be attributed at Arm's Length Price. In the facts of the present case since the AE (HO) entered into an agreement with APL and JPL to execute the contract of power project for2 APL and JPL. The appellant being the PO is executing the project under the delegation of responsibilities by the HO. Therefore, such delegation of responsibility by the head office is required to be considered as an international transaction between appellant and HO of the appellant. Since there existed a prior agreement in relation to the transaction between the HO and APL and JPL, the transaction between appellant and APL and JPL is a deemed international transaction u/s. 92B(2). Accordingly, it is held that the TPO is justified in holding the transactions between the appellant and its head office as international transaction. Further It is important to note here that Section 92F (iii) defines enterprise as a person including a permanent establishment of such person. A permanent establishment has been defined u/s 92F(iiia) as a fixed place of business through which the business of the enterprise is carried on. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 17. Learned CIT(A) further observed that the transfer pricing addition was incorrectly made by selecting functionally incomparable transactions by observing as follows:- 10. I have perused the above submission of the appellant company. The appellant has pointed out various shortcomings in -application of filter while selecting comparable companies and also emphasized that the comparable transactions selected by the AO for benchmarking the deemed international transactions for determining ALP are not comparable uncontrolled transactions in terms of Rule 10B Rule 10C of the IT Rules r.w Section 92C of the IT Act. Also I have perused the submission filed vide page no 60 to 80 of the Paper Book more particularly detailed information of the said comparables provided vide page nos 81 to 146 of the Paper Book. Further, I have perused the information about 10 comparable companies provided vide above referred submission dated 1st August, 2014. I have found that the comparables selected by the AO are not comparable in view of functional compatibility of the said transactions, absence of segment information for individual line of business in case of those comparables which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the contracts between the parties APL JPL to Shandong HO vis-a-vis the contract awarded to Shandong PO by the Shandong HO. Further, it is also not disputed at the end of the Revenue that the price at which the contracts were awarded by APL and JPL- Indian parties - to Shandong HO - Chinese entity - is a same price at which transactions price between Shandong PO, i.e. appellant in India and Shandong HO, a Chinese entity, as agreed upon. When the total value of the contract awarded to the Chinese HO has been offered as gross revenue by the Shandong PO, i.e. foreign entity incorporated in India, then how can there be any shifting of profits. This view further gets fortified in view of the fact that the action of the Assessing Officer in rejecting the books of accounts has already held to be invalid, which therefore, shows that the profits have been rightly shown by the assessee. For the purpose of computing Arm's Length Price, the basic thing which is to be examined that whether the assessee has shifted the profits to its Associate Enterprises either directly charging less revenue or showing excess cost to reduce the profits, but in the instant case where the total contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) thereof provides that for the purposes of sub-section (1) of section 92C of the Act, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction and which provides the most reliable measure of an arm s length price in relation to the international transaction or the specified domestic transaction as the case may be. Sub-rule (2) provides for the factors which are required to be taken into account in selecting the most appropriate method as specified in sub-rule (1). 15. The controversy involved in the present case is required to be examined in the light of the above statutory provisions. With the CUP method, the price and conditions of the controlled transaction between associated enterprises with the price and conditions of the comparable uncontrolled transaction between independent enterprises have to be compared. If the two prices are the same, the conditions of the controlled transaction are at arm s length and if the two prices are different, then the conditions of the organization's commercial or financial relations with the associated enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method should have been followed by the Assessing Officer to determine the arm s length price and further held that if the CUP method is applied, then no transfer pricing adjustment needs to be made in the given facts and circumstances of the case. The Tribunal, accordingly, found no infirmity in the findings recorded by the Commissioner (Appeals) and decided the question against the revenue. 17. In the opinion of this court, the question as to which is the most appropriate method for determining the arm's length price and as to whether the transaction between APL and JPL and Shandong Head Office is a comparable uncontrolled transaction is basically a question of fact. From the concurrent findings of fact recorded by the Tribunal and the Commissioner (Appeals) based on the material on record, it is apparent that the terms of functions performed, assets employed, risk undertaken, the price charged in comparable uncontrolled transactions entered into by virtue of the contract between APL and JPL and Shandong HO vis- -vis the contract awarded to Shandong PO by Shandong HO, are identical. It is based upon such concurrent findings of fact recorded by it after appreciating the m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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