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TMI Blog2017 (10) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified u/s 153(1) of the Act, applies. From a perusal of the above records produced by the ld. DR, we find that the Assessing Officer has not made a reference as per law to the T.P.O. u/s 92CA(1) of the Act. The Assessing Officer of the assessee has to address a communication to the T.P.O. making the reference u/s 92CA(1) of the Act by mentioning as to which are the international transaction which require determination of ALP. It is clear the revenue could not demonstrate that there was a valid reference u/s 92CA(1) of the Act, for both the impugned assessment years by the Assessing Officer to the T.P.O. Only letters of approval obtained for making the reference are available on record, right from the stage of assessment proceedings. We agree with the contentions of the ld. Counsel for the assessee, that the assessment orders passed for both the assessment years are barred by limitation as there is no valid reference by the Assessing Officer to the T.P.O and consequently the limitation specified u/s 153(1) of the Act, applies. Appeal of assessee allowed. - I.T.A. No. 572/Kol/2014, I.T.A. No. 487/Kol/2015 - - - Dated:- 25-10-2017 - Sri N.V. Vasudevan, Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Plant Turnkey Package (SgMP-1) Units 1 2 (2 X 300MW) alongwith some common facilities; and (b) Letter of Award ( LOA ) dated July 27, 2004 issued by WBPDCL for Erection and Services of Main Plant Turnkey Package (SgMP-,l) Units 1 2 (2 X 300 MW) along with some common facilities; As per the terms of the said contracts, the consideration to be received by the company from WBPDCL in respect of the aforesaid activities will be as under: USD 22,20,56,503 on account of offshore supply of equipment ( including spare parts, tools and tackles) outside India; and INR 4,59,33,77,323 and 1,62,75,326 for local supplies, design, engineering and construction, fabrication, erection, installation, testing and commissioning of thermal power unit in India. DPL Contract No. DPL/Unit-7/DMP-1(Supply)/2004-05/001 for supply of plant equipments of thermal power plant alongwith some common facilities; and; Contract No. DPL/Unit-7/DMP-1(SERVICES)/2004- 05/2002 for erection and services of thermal power plant alongwith some common facilities; and LOA dated July 27, 2004 issued by DPL for supply of plant equipments and Erection and services of thermal power plant alongwith some common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urcharge cess as applicable) of 2.5% or @ 1.045%. Local supply and services: A sum equivalent to 10% of gross receipts under this contract(s) was deemed to be income for the purpose of determination of rate at which tax was required to be deducted at source. Accordingly, the rate of TDS was determined at 41.8 % (the rate prescribed in the Finance Act plus surcharge cess as applicable) of 10% or @ 4.182%. 6. Having not been satisfied with the above orders u/s 197, the assessee filed revision petition u/s 264 of the Act before the DIT( IntI. Taxn), Kolkata on 25.04.2005. Ld. DIT( IntI. Taxn), Kolkata, after taking into consideration the factual matrix of the case(s) and all applicable legal provisions, passed separate orders u/s 264 for WBPDCL and DPL on 17.6.2005. Paragraph No.8, being the last paragraph of the order u/s 264 contains the summary, which is identical in both the order. The summary is reproduced below: 8. To sum up OffShore supply Profit from offshore supply of equipment/machinery is deemed to accrue or arise to the petitioner under Indian Income tax Act, as it has arisen to the petitioner through or from business connection in India. Only such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts of the case in making reference under section 92CA of the Act to the TPO on erroneous assumption that: (i) the Project office and the Head Office in China are Associated Enterprise; (ii) domestic activities carried out by the Project Office are international transactions within the meaning of section 928 of the Act; 3. The Assessing Officer/TPO/DRP vide impugned order have erred in law and on the facts and circumstances of the case in making an adjustment of Rs236,541,345 by applying Transfer Pricing provisions and thereby rejecting the book results of the Project Office which were arrived at in consonance with Article 7(1) of Double Taxation Avoidance Agreement between India and China read witt1 Article 5 thereof. 4. Without prejudice to the above grounds, the adjustment of Rs 236,541,345 made by the Assessing Officer/TPO/DRP vide impugned order is bad in law and on the facts and circumstances of the case as the same has been made:- (i) By applying Transactional Net Margin Method and rejecting Comparable Uncontrolled Price method or Profit Split Method for determining the amount of profit; (ii) By taking into consideration the comparable which diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld draft assessment order and transfer pricing order passed on identical lines as in earlier years. DRP completely failed to appreciate that the whole purpose of de novo assessment would be lost by merely repeating the earlier orders. 4. On the facts and in the circumstances of the case, the AO/ TPO/ DRP has erred in not following the guidelines laid down by the Courts including Hon'ble Income Tax Appellate Tribunal in similar situations including that of the Appellant in earlier years. 5. On the facts and in the circumstances of the case and in law, the present impugned conclusions of AO/ TPO/ DRP in the impugned order are result of baseless, inconsistent and self-contradictory presumptions on facts and law. 6. On the facts and in the circumstances of the case, the DRP failed to consider all relevant aspects and routine proceeded to uphold assessment on the very same basis as in earlier years even while noting that the higher courts have already directed de novo assessment in those earlier years. 7. On the facts and in the circumstances of the case and in law, the Aa has erred in law and on the facts of the case in making reference under section 92CA of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Aa has erred in initiating penalty proceedings under sections 271 (1 )(c) of the Act 14. The appellant craves leave to add, amend, withdraw any grounds of appeal in the interest of natural justice either before or during the course of appeal proceedings. 3.1. The assessee filed the following additional grounds of appeal for both the Assessment Years:- Assessment Year 2009-10 2(a) Without prejudice to ground no 1, that on the facts and in the circumstances of the case and in law, there is in fact no valid reference made under section 92CA(1) of the Income Tax Act, 1961 by Assessing Officer ('Assessing Officer') to the Transfer Pricing Officer ('TPO'). 2(b) Without prejudice to ground no 1, determination of existence of specific international transaction being an exercise within exclusive jurisdiction of the Assessing Officer before making any reference to the TPO, determination of existence of international transaction by TPO and subsequent determination of ALP is beyond specific and distinct jurisdictions conferred in law and consequently the resultant demand in invalid and unenforceable in law. 4(i) That on the facts and in the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CBDT had conferred jurisdiction on certain designated officers to act as TPOs. 5.2.1. The ld. Counsel for the assessee, submitted that the assessee has repeatedly requested the assessing officer to provide copies of references made by the TPO in terms of provisions of the Act, on 11th March 2013, 23rd June 2015 and on other occasions, but submitted that it was not furnished with the same. He pointed out that it is the statutory right of the assessee to know as to what are the contents of the reference. He further submitted that the assessee had conducted inspection of the records for both the assessment years and found that no reference was made by the ld. Assessing Officer, to the ld. TPO, as required under the provisions of the act. 5.2.2. The Assessing Officer's act of seeking approval from DIT(IT) or the AO communication to the ld. DIT(IT), that he obtained the approval for referring the transactions to the TPO under the Act, is not a statutory reference made by the Assessing Officer to the TPO as prescribed u/s. 92CA of the Act. 5.2.3. He argued that the letter dated 26/12/2011, from the AO to the DIT(IT), seeking approval of reference to TPO under section 92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT. The revenue has accepted and not disputed that the project office activities are within the scope of agreed onshore scope of work with the third-party contractees and is not justified in making adjustment to the price with respect to the onshore part of the contract as negotiated and agreed bilaterally between the assessee and the independent third parties. 5.5. Without prejudice, it was submitted that DEC- China has suffered a loss on the overall project, both onshore as well as offshore supply of services and hence for the attribution of profits, the whole contract has to be looked into and under the circumstances, there would be attribution of loss to DEC-PO. 6. The ld. Counsel for the assessee, disputed the Most Appropriate Method (MAP), selected by the TPO i.e., TNMM and submitted that comparable uncontrolled price(CUP) method is the best method. He also disputed the selection of comparables, on the ground that full facts of the comparables were not available on record. 6.1 The ld. DR, Shri G. Mallikarjuna, on the other hand, strongly disputed the contentions of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the following case law:- DIT vs. Morgan Stanley (2007) 162 Taxman 165 Credit Lyonnais v. ITO [2014] 51 taxmann.com 354 (Mumbai-Trib.) 7.1. He relied on the decision of the Hon'ble Delhi High Court in the case Rolls Royce Singapore (P) Ltd. v. ADIT [2011] 13 taxmann.com 81 (Delhi), for the proposition that, for attribution of profits to a PE, a robust TP analysis is required and the activities of the PE are remunerated at a fair value, the question of double taxation or deeming notional income does not arise. For the arguments on comparables and MAP, he relied on the order of the DRP. 8. Rival contentions heard. On a careful consideration of the facts of the case, perusing the papers on record, orders of the Authorities below and the case laws cited, we hold as follows:- 8.1. The first issue that arises for consideration is whether a reference was made by the Assessing Officer to the transfer pricing officer under section 92 CA(1) of the Act. For convenience, we extract paragraph 24 to 27 of the final Assessment Order for Assessment Year 2009-10, for ready reference:- 24. The assessee vide letter dt.13.03.2013 filed an objection alleging that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer has made a reference of the international transactions to the TPO. What is produced before us, is only an approval granted by the DIT(IT) on 27/12/2011, for the Assessment Year 2009-10. This letter of approval signed by the I.T.O. (tech), International Taxation, Kolkata, was sent to the T.P.O. The grant of approval does not meet the requirements of section 92 CA(1) of the Act, which specifically requires reference by the Assessing Officer to the Transfer Pricing Officer, for the competition of ALP in relation to international transactions. Even the letter dt. 03/02/2012, addressed to the DIT(TP) bearing reference no. ADIT(IT)-1(1)/Kol/TP/reference/2011-12/730 by the ADIT(IT), only seeks to intimate the fact of grant of approval by the DIT(IT)- Kolkata, and it is not a statutory reference. The photocopy of the dispatch register does not demonstrate that the assessing officer has made the reference as required by the statute to the TPO. In fact these are the only evidences in the assessment order. Which are the International Transaction/s which have been referred by the Assessing Officer to the T.P.O. u/s 92CA[1] of the Act is not stated. The section clearly states ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Case records reveal that the approval for reference to the TPO for determination of Arms Length Price u/s 92CA of the I.T. Act, 1961 in this case for A.Y. 2010-11 was obtained from the DIT office on 06.12.2012 vide DIT office letter DIT(IT/Kol/TP-approval/55/2012-13/2436 dated 06/12/2012. The AO after obtaining approval from DIT(IT), Kolkata has submitted all the relevant documents to the DIT(TP), Kolkata for necessary action at the end of DIT(TP), Kolkata. Certified copies of the documents available in the file are enclosed (Annexure- 2 3). 2. Date of Dispatch of reference letter by the Assessing Officer to Addl. CIT(TP) Cannot be readily replied for non-availability of the copy of the letter in the records. It may be mentioned that the Directorate of International Taxation was previously situated at 4th Floor, Aayakar Bhawan, P-69, Chowringhee Square, Kolkata. The office has subsequently shifted to 110, Shantipally, Kolkata. Other Corroborative records such as Dispatch Registers etc could not be located. However it could not be correct that a valid reference has not been made after obtaining DIT's approval. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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